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CONTRACTS  AND  COMBINATIONS 
IN  RESTRAINT  OF  TRADE 


By 
ALBERT  M.  KALES 

OF  THE  CHICAGO  BAR 


CHICAGO 

CALLAGHAN  AND  COMPANY 

1918 


COPTBIGHT    1918 

By 
CALLAGHAN  &  COMPANY 

T 


PREFATORY  NOTE 


In  limiting  the  freedom  of  individuals  in  the  conduct  of  busi- 
ness, or  the  disposal  of  their  labor  or  commodities,  courts  ought 
not,  and  customarily  do  not  promulgate  prohibitions  based  on 
any  doubtful  or  speculative  balance  of  what  may  be,  from  all 
points  of  view  and  upon  elaborate  investigations  of  fact,  most 
expedient  and  desirable.  They  prohibit  only  when  a  distinctive 
act  is  presented  which  is  certainly  inimical  to  the  public  interest, 
or  which  may,  on  a  balancing  of  the  opposing  considerations,  be 
so  regarded.  Where  there  is  doubt  or  mere  speculation  as  to 
results  the  tendency  is  to  permit  freedom  of  economic  action. 
Yet  in  determining  whether  the  distinctive  act  is  certainly 
inimical  to  the  public  interest  the  courts  must  deal  with  economic 
facts  and  principles — especially  those  which  are  regarded  as 
fundamental  and  not  subject  to  serious  controversy. 

In  this  summary  I  have  attempted  to  connect  the  prohibitions 
of  the  courts  upon  the  freedom  of  economic  action  with  the 
economic  facts  and  principles  upon  which  they  rest,  I  have 
attempted  in  the  text  to  balance  economic  considerations.  In 
the  notes  are  incorporated  many  quotations  to  indicate  the 
economic  facts  and  principles  which  the  courts  take  cognizance  of 
in  reaching  their  conclusions.  By  this  means  I  have  sought  not 
only  to  make  an  analysis  of  results  but  to  illustrate  a  technique  of 
reasoning. 

I  am  indebted'  to  the  Harvard  Law  School  for  the  opportunity 
of  giving  a  course  upon  the  subject  of  this  volume  in  the  year 
1916-17,  and  of  submitting  the  present  analysis  of  the  cases  to 
the  criticism  and  scrutiny  of  a  third  year  class.  I  acknowledge 
a  very  great  indebtedness  to  "Walter  T.  Fisher  for  many  valuable 
criticisms  and  suggestions.    Parts  of  the  present  summary  have 

iii 


768146 


PREFATOEY   NOTE 

appeared  as  articles  in  the  Harvard  Law  Review  and  the  Cornell 
Law  Quarterly. 

For  convenience  in  making  references  to  my  casebook  on 
Contracts  and  Combinations  in  Restraint  of  Trade,  the  pages  of 
the  casebook  are  referred  to  enclosed  in  square  brackets 
thus  [— ]• 

Chicago,  Feb.  1,  1918.  A.  M.  K 


vr 


TABLE  OF  CONTENTS 


PART  1 
THE  COMMON  LAW 

Chapter  I 

CONTEACTS  TO  EEFEAIN  FEOM  DOING  BUSINESS  OE  FEOM 
ENTEEING  OE  CAEEYING  ON  AN  OCCUPATION 

§§ 

Sec.  1.  The  mere  contract  to  refrain  from  doing  business  or  from 

entering  or  carrying  on  an  occupation 1 

Sec.  2.  Eestrictive  contracts  accompanying  the  promisor's  entry  into 
an  apprenticeship  arrangement,  or  made  upon  his  entry  into 
the  service  of  tho  promisee  for  the  purpose  of  learning  a, 
trade   or   business 2-5 

Sec.  3.  Restrictive  contracts  accompanying  the  sale  of  a.  business, 
which  sale,  however,  is  not  made  to  a  competitor. 

(1)  Where  the  restriction  is  not  broader  than  the  business 

sold  and  is  operative  over  a  territory  less  than  that 
of  any  state  where  the  restriction  applies 6-9 

(2)  Where  the  restriction  is  not  broader  than  the  business 

sold  but  extends  up  to  or  beyond  the  limits  of  any 
state  where  it  is  operative 10 

(3)  Where  the  restriction  is  broader  than  the  business  sold 

and  the  business  sold  is  not  co-extensive  with   the 
boundaries  of  the  United  States 11-14 

(4)  Where  the  business  sold  is  co-extensive  with  the  boun- 

daries  of   the   United   States  but   the   restriction  is 

world-wide    15 

Sec.  4.  Eestrictive   contracts  accompanying  the  sale  of  a  business  to 
an  existing  competitor  where  the  restriction  is  so  far  lim- 
ited as  to  be  valid  if  the  sale  were  not  to  a  competitor. .  .16,  17 
Sec.  5.  Eestrictive    contracts    accompanying    the    combination    of    sev- 
eral business  units 18 

Sec.  6.  Contracts   not   to   carry   on   a   business   given   by   one   in   the 

business  to  another  in  the  business  or  intending  to  enter  it. .  19-22 

V 


TABLE  OP  CONTENTS 

Chaptee  II 

§§ 
CONTRACTS  ACCOMPANYING  THE   SALE  OP  PROPERTY  RE- 
SERVING THE  SELLER'S  BUSINESS  23-25 

Chapter  III 
EXCLUSIVE  CONTRACTS  OF  SALE  AND  PURCHASE 26-30 

Chapter  IV 

CONTRACTS  TO  KEEP  UP   THE   PRICE  ON  RESALE   OR   TO 

BUY  OR  USE  OTHER  ARTICLES  IN  CONNECTION 

WITH    THOSE   SOLD 

Sec.  1.  Contracts  to  keep  up  the  price  on  resale 31-40 

Sec.  2.  Contracts   to   buy   or   use   other   articles   in   connection   with 

those  sold  41-47 

Sec.  3.  Conclusion   47a-47b 

Chapter  V 

COMBINATIONS  [GOOD  AND  BAD  TRUSTS] 

Introductory  48 

Sec.  1.  Combinations  clearly  illegal 49-52 

Sec.  2.  Combinations  clearly  legal 53-59 

Sec  3.  Combinations   which    have    a   preponderant    position    but    no 

excluding  purposes  or  practices 60-62 

The  state  of  the  authorities 63-73 

Economic  effect  of  mere  size 74-91 

Conclusion   92 

Chapter  VI 

COMPETITIVE   METHODS 

Introductory    93 

Mogul  Steamship  Co.  v.  McGregor,  Gow  &  Co 94 

Scottish  Co-operative  Wholesale  Society  v.  Glasgow  Fleshers'  Trade 

Defense  Association   95 

Allen  V.  Flood 96 

Qoinn  v.  Leathem 97 

Curran  v.  Galen,  and  The  National  Protective  Association  v.  Gumming  98 

Berry  v.  Donovan 99 

Vegelahn  v.  Guntner 100 

Bohn  Manufacturing  Company  v.  HoUis 101 

Martell  v.  White 102 

vi 


TABLE  OP  CONTENTS 

§i 

Macauley  v.  Tierney 103 

Brown  &  Allen  v.  Jacobs'  Pharmacy  Co 104 

National  Fireproofing  Co.  v.  Mason  Builders'  Association 105 

Park  &  Sons  v.  National  Druggists'  Association  and  Kingel's  Phar- 
macy V.  Sharp  &  Dohme 106 

State  ex  rel.  Burner  v.  Huegin 107 

Tattle  V.  Buck  and  Dunshee  v.  Standard  Oil  Co 107a 

PART  2 
THE  SHERMAN  ACT 

Chapter  VII 

PROBLEMS  OP  CONSTRUCTION 108-112 

Chapter  VIII 

THE  DECISIONS  OF  THE  UNITED  STATES  SUPREME  COURT 
UNDER  THE   SHERMAN  ACT 

Sec.  1.  Contracts  accompanying  the  sale  of  a  business 113,  114 

Sec.  2.  Exclusive  contracts  of  sale  and  purchase 115 

Sec.  3.  Contracts  to  keep  up  the  price  on  resale 116 

Sec.  4.  Combinations: 

Of  transportation  units 117-122 

Of  trading  and  manufacturing  units 123-130 

Sec.  5.  Competitive  Methods 131-136 

Chapter  IX 

THE  DICTA  OF  THE  UNITED  STATES  SUPREME  COURT. . .  .137-144 

Chapter  X 

THE  CONSTITUTIONALITY  AND  VALIDITY  OF  THE  SHERMAN 
ACT    145-148 

Chapter  XI 

WHO   MAY  INVOKE   THE   APPLICATION  OF   THE   SHERMAN 
ACT    149-153 

PART  3 

THE  FEDERAL  TRADE  COMMISSION  LAW  AND  THE 
CLAYTON  ACT 

Chapter  XII 

THE  FEDERAL  TRADE  COMMISSION  LAW 154 

vii 


TABLE  OP   CONTENTS 

Chapter  XIII 

§§ 

THE  CLAYTON  ACT 155-162 

PART  4 
PATENTS  AND  COPYRIGHTS 

Chapter  XIV 
EFFECT  OF  PATENTS  AND  COPYRIGHTS 162a-172 


TABLE  OF  CASES 


Seo. 

Adair  v.  United  States 145 

Addyston  Pipe   &  Steel  Co.   v. 

United    States 48,  123 

Alger  V.  Thaeher 11 

Allen  V.  Flood 96,  107,  132 

Ames  V.  American  Tel.  &  Tel. 

Co 149 

Anchor  Electric  Co.  v.  Hawkes 

6,  7,  11,  18,  53,  56 

Anderson  v.  Jett 67 

Anderson  v.  United  States 130 

Arnot  V.  Pittston  &  Elmira  Coal 

Co 29,  49 

Attwater  v.  Attwater 35 

Badische  v.  Schott 2 

Bauer  v.  O'Donnell 40,  166 

Bax   V.   Whitbread 81 

Beard  v.  Dennis 16,  53 

Bell  Telephone  Co.  v.  Common- 
wealth     165 

Bement    v.     National    Harrow 

Co 165,  167 

Berlin  Machine  Works  v.  Perry  11 

Berry  v.  Donovan 99 

Bigelow    V.    Calumet    &    Hecla 

Mining  Co 151 

Bishop  V.  American  Preservers* 

Co 66 

Bishop  V.  Palmer 11,  12 

Blindell  v.  Hagan 152 

Bloom  V.  Eichards 148 

Blount    Mfg.    Co.    V.    Yale    & 

Towne  Mfg.  Co 168 

Bobbs-Merrill  Co.  v.  Straus..40,  166 


Sso. 
Bohn  Mfg.  Co.  v.  Homs...l01,  132 

Bowser  v.  Bliss 6 

Boyd  v.  New  York  &  H.  E.  Co..  151 
Brown  &  Allen  v.  Jacobs'  Phar- 
macy Co 104 

Butcher  v.  Butcher  (9  Ves.  382)  .  81 
Butcher  v.  Butcher  (1  Ves.  &  B. 
79)  81 

California     Steam     Navigation 

Co.  V.  Wright 16,  50,  53,  55 

Carroll  v.  Giles 16 

Central  New  York  Telephone  & 

Telegraph  Co.  v.  Averill 30 

Central  Ohio  Salt  Co.  v.  Guth- 
rie    18,  66 

Central  E.  E.  Co.  v.  Collins 68 

Central    Shade    Eoller     Co.    v. 

Cushman    53 

Chapin  v.  Brown  Bros 7,  63 

Chappel  v.  Brockway 

16,  50,  53,  55,  57 

Chesapeake  &  Potomac  Tel.  Co. 

V.  Baltimore  &  Ohio  Tel.  Co..  .165 
Chicago     Gas     Light     Co.     v. 

People 's  Gas  Light  Co 51 

Chicago,  Milwaukee  &  St.  P.  Ey. 

Co.  V.  Wabash,   St.   L.   &  P. 

Ey.  Co 51 

Chicago,  Milwaukee  &  St.  P.  E. 

E.  V.  Wisconsin 145 

Chicago,  St.  L.  &  N.  0.  E.  Co. 

V.  Pullman  Southern  Car  Co..  27 
Cincinnati  Packet  Co.  v.  Bay. .  .113 
Clark  V.  Frank 32,  61 


IX 


TABLE  OF  CASES 


Seo. 

demons  v.  Meadows 20 

Collins  V.  Locke 72 

Commercial   Union   Tel.   Co.   v. 

New  England  Tel.  &  Tel.  Co..  165 
Connolly  v.  Union  Sewer  Pipe 

Co 153 

Coppage  V.  State  of  Kansas ....  145 
Continental    Securities    Co.    v. 

Interborough    Bapid    Transit 

Co 151 

Continental  Wall  Paper  Co.  v. 

Voight  &  Sons  Co 

29,  49,  115,  153 

Craft  V.  McConoughy 49 

Cummings  v.  Union  Blue  Stone 

Co 52,  66 

Curran  v.  Galen 98 

DeKoven  v.  Lake  Shore  &  M. 

S.  Ey.  Co 151 

Delaware  &  Atlantic  Tel.  &  Tel. 

Co.  V.  Delaware 165 

DeWitt  "Wire- Cloth  Co.  v.  New 

Jersey  Wire-Cloth  Co 67 

Diamond  Match   Co.  v.  Eoeber 

.  .6,  7,  8,  10,  11,  16,  53,  55,  56,  57 
Distilling  &  Cattle  Feeding  Co. 

V.  People  49,  66 

Doe  V.  Pearson 35 

Dolph  V.  Troy  Laundry  Machin- 
ery Co 53,  58 

Doty  V.  Martin 6 

Dr.  Miles  Medical  Co.  v.  Park 

&  Sons  Co 32,  40,  61,  71,  110 

Duffy  V.  Shockey 6,     7 

Duke  of  Norfolk's  Case 91 

Dunbar  v.  American  Telephone 

&  Telegraph  Co 49,  151 

Dunlop  V.  Gregory 6 

Dunshee  v.  Standard  Oil  Co..  107a 

Eastern  States  Betail  Lumber 
Dealers'  Ass'n  v.  United 
States  132,  144 

EUiman  Sons  &  Co.  v.  Carring- 
ton  &  Son 32,  61 

Emery  v.  Ohio  Candle  Co 66 


Sec. 

Fairbank  v.  Leary 49 

Fleitmann  v.  Welsbach  Co 149 

Fonotipia  v.  Bradley 64 

Ford  V.  Chicago  Milk  Shippers* 

Ass'n 67 

Francisco  v.  Smith 46 

French  v.  Parker 13 

Gamewell     Fire-Alarm    Co.     v. 

Crane  7,  11,  12,  16 

Garst  V.  Charles 32,  61 

Garst  V.  Harris 23,  61 

Geddes  v.  Anaconda  Copper  Co..l51 
Gibbs  V.   Consolidated   Gas  Co. 

of   Baltimore 51 

Gibbs  V.  Smith 49 

Gloucester  Isinglass  &  Glue  Co. 

V.  Eussia  Cement  Co 53 

Gompers  v.  Bochester 9 

Graeff  v.  De  Turk 81 

Green  v.  Price 7 

Greer  Mills  &  Co.  v.  StoUer 152 

Grenada  Lumber  Co.  v.  Missis- 
sippi     134 

Grogan  v.  Chaffee 32,  61 

Hall's  Appeal  9 

Harding    v.    American    Glucose 

Co 66,  151 

Harkinson  's  Appeal   6 

Harrison   v.  Lockhart 1 

Hartley  v.  Cummings 7 

Hawthorn  v.  Ulrich 81 

Heaton-Peninsular  Button   Fas- 
tener Co.  V.  Eureka  Specialty 

Co 165 

Henry  v.  A.  B.  Dick  Co 41, 168 

Herreshoff  v.  Boutineau..!,  2,  7,  10 

Hilton  V.  Eckersley 91 

Hitchcock  V.  Coker 3,  4,  7,  13 

Hockett  V.  State 163 

Hodge  V.  Sloan 23 

Hoffman  v.  Brooks 66 

Holbrook  v.  Waters 6,     7 

Hooker  v.  Vandewater 67 

Hornby  v.  Close 72 


TABLE  OF  CASES 


8bc. 
Honvood  V.  Millar's  Timber  & 

Trading  Co 62 

Houck  &  Co.  V.  Wright 27 

Hubbard  v.  MiUer 7,  14,  16,  53 

Hursen  v.  Gavin 6 

India    Bagging    Ass'n    v.    B. 

Kock  &  Co 67 

International  Harvester  Co.  v. 

Kentucky    147 

International  Harvester   Co.  v. 

United  States 76 

John  Brothers  Abergarw  Brwg. 

Co.   V.  Holmes 46 

Jones  V.  Clifford's  Ex'r 59,  65 

Jones  V.  North 53 

Judd  V.  Harrington 67 

Kansas  v.  Colorado 148 

Kellogg  V.  Larkin 

1,6,  7,  16,  50,  53,  55,  56,  57 

Kemp  V.  Kemp 81 

Klingel's  Pharmacy  v.  Sharp  & 

Dohme    106 

Lange  v.  Werk 11,  14 

Lawlor  v.  Loewe 135,  152,  157 

Lawrence  v.  Kidder 7,  11 

Leslie  v.  Lorillard 

...  .6,  7,  16,  17,  20,  53,  55,  56,  57 

Lochner  v.  New  York 145 

Loewe  v.  Lawlor 135,  152,  157 

Lufkin  Eule  Co.  v.  Fringeli..ll,  20 

Lux  v.  Haggin 148 

Lyle  V.  Bichards 148 

McAlister  v.  Howell 1 

McBirney    &    Johnston    White 
Lead     Co.     v.     Consolidated 

Lead  Co 66 

Macauley  v.  Tierney 103,  133 

Macleay,  In  re 35 

Mandeville  v.  Harman 13 

Mapes  v.  Metcalf 16,  20,  53 

Marsh  v.  Bussell 53 

Martell  v.  White 102,  133 


Sec. 

Master  Stevedores*  Ass'n,  The 
V.  Walsh    72 

Meredith  v.  New  Jersey  Zinc  & 
Iron  Co 53,  57 

Metropolitan  Trust  Co.  v.  Co- 
lumbus Co 165 

Milwaukee  Masons '  &  Builders ' 
Ass  'n  V.  Niezerowski 66 

Minnesota  v.  Northern  Securi- 
ties Co 150 

Missouri  v.  Bell  Telephone  Co..  165 

Mitchel  V.  Eeynolds 

1,  4,  7,  8,  9,  50 

Mogul  Steamship  Co.  v.  Mc- 
Gregor, Gow  &  Co 50,  94,  136 

Montague  v.  Lowry 131 

Moore  &  Handley  Hardware  Co. 
V.  Towers  Hardware  Co...  16,  53 

Morris  Eun  Coal  Co.  v.  Barclay 
Coal  Co 52,  66 

Morse  Twist-Drill  &  Machine 
Co.  V.  Morse 2 

Motion  Picture  Patents  Co.  v. 
Universal  Film  Mfg.  Co.  .41,  166 

Murphy  v.  Christian  Press 
Ass  'n    46 

Nash  V.  United  States 147 

National  Bank  of  the  Metropo- 
lis V.  Sprague 49 

National  Benefit   Co.   v.  Union 

Hospital  Co 

6,  7,  8,  16,  20,  53,  55,  56,  57 

National  Enameling  &  Stamp- 
ing Co.  V.  Haberman 6 

National    Fireproofing    Co.     v. 

Mason  Builders '  Ass  'n . .  105,  152 
National  Harrow  Co.  v.  Hench..l68 
National     Protective     Ass'n     v. 

Cumming   98 

Nester  v.  Continental  Brewing 

Co. 66 

Newell  V.  Meyendorff 27 

New  York  Co.  v.  Hamilton  Co..  46 
New  York  Ice  Co.  v.  Parker. 32,  61 
Norcross  v.  James 25 


Jl 


TABLE  OF  CASES 


Sec. 
Nordenfelt   v.   Maxim    Norden- 

felt  Guns  &  Ammunition  Co. 

7,  10,  15,  16,  53 

Northern      Securities      Co.      v. 

United  States 51,  118,  139 

Oakdale  Mfg.  Co.  v.  Garst 

7,  18,  53,  55,  57 

Oliver  v.  Gilmore 20 

Ontario  Salt  Co.  v.  Merchants 

Salt  Co 53,  90 

Oregon  Steam  Navigation  Co.  v. 

Winsor    6,  14 

Paine  Lumber  Co.  v.  Neal 

152,  158,  160 

Park   &    Sons    Co.    v.    National 

Druggists '  Ass  'n   106 

Patterson  v.  Kentucky 163 

People    V.    Chicago    Gas    Trust 

Co 51,  68 

People  V.  Fisher 72,  73 

People  V.  Milk  Exchange 66 

People    V.    North    Eiver    Sugar 

Refining  Co 76 

People  V.  Sheldon 66 

Pidcock  V.   Harrington 152 

Pierce  v.  Fuller 7 

Pilkington  v.  Scott 7 

Pocahontas  Coke  Co.  v.  Pow- 
hatan Coal  &  Coke  Co 66 

Postal  Cable  Telegraph  Co.  v. 
Cumberland  Telephone  &  Tel- 
egraph Co 165 

Queen  Ins.  Co.  v.  State  of  Texas 

53,  64,  73 

Quinn  v.  Leathern 97 

Eailroad  v.  Keary 148 

Raymond  v.  Leavitt 52 

Richardson  v.  Buhl 68 

Richardson  v.  Mellish 91 

Robinson    v.    Suburban    Brick 

Co 18,  53 

Rosher,  In  re 35 

Rousillon  v.  Bousillon 2 


Sec. 
Samuels  v.  Oliver 52 

Sayre    v.    Louisville    Union    Be- 
nevolent Ass  'n  53,  73 

Sayward  v.  Carlson 148 

Scottish  Co-operative  Wholesale 
Society  v.  Glasgow  Fleshers' 

Trade  Defence  Ass'n 95 

Shawnee  Compress  Co.  v.  An- 
derson     114,  151 

Shrainka     v.     Scharringhausen 

53,  64,  65 

Slaughter  v.  The  Thacker  Coal 

&  Coke  Co 53,  57,  58 

Smith  'a  Appeal 6,  14,  56 

Snow  V.  Wheeler 72 

Southern  Fire  Brick  &  Clay  Co. 

V.  Garden  City  Sand  Co 28 

Southern  Indiana  Express  Co. 
V.  United  States  Express  Co..  152 

Spencer  v.  Spencer 81 

Standard  Co.  v.  Methodist  Co . .  46 
Standard    Oil    Co.     v.     United 

States   48,  49, 

50,  61,  65,  108,  120,  126,  140,  146 
Standard  Sanitary  Mfg.  Co.  v. 

United  States 171 

Stanton  v.  Allen 66 

State     v.     Creamery     Package 

Mfg.  Co 168 

State  V.  Bell  Telephone  Co 165 

State  V.  Cawood 148 

State  ex  rel.  Postal  Telegraph 
Cable  Co.  v.  Delaware  &  At- 
lantic Tel.  &  Tel.  Co 165 

State  V.  Huegin 107 

State    V.    Nebraska    Telephone 

Co 165 

State  V.  Standard  Oil  Co. 48,  67,  68 

Stines  V.  Dorman 22 

Strait  V.  National  Harrow  Co . .  168 
Straus  V.   American   Publishers 

Ass  *n    169 

Straus  V.  Victor  Talking  Ma- 
chine Co 40,  71,  166 

Swift  V.  Tyson 148 

Swift  &  Co.  V.  United  States . .  124 


X« 


TABLE  OF  CASES 


Sec. 

Taylor  v.  Blanchard 11 

Texas  &  Pae.  Ky.  Co.  v.  South- 
ern Pac.  Ey.  Co 51 

Texas     Standard     Oil     Co.     v. 

Adoue    65,  67 

Thellusson  v.  Woodford 91 

Thomas  v.  Cincinnati,  N.  0.  & 

T.  P.  Ky.  Co 72 

Thomas  v.  Miles'  Adm'r....ll,  14 

Thomson  v.  Cayser 136 

Tode  V,  Gross 11 

Trenton    Potteries    Co.    v.    Oli- 

phant. . .  .6,  11,  14,  16,  55,  56,  64 
Tuscaloosa  Ice  Mfg.  Co.  v.  Wil- 
liams      20 

Tuttle  V.  Buck 107a 

Union  Pacific  E.  R.  Co.  v. 
Frank    151 

Union  Trust  &  Savings  Bank  v. 
Kinloch  Long-Distance  Tele- 
phone Co 30 

United  States  v.  Addyston  Pipe 
&  Steel  Co 48 

United  States  v.  American  Can 
Co 64,  88 

United  States  v.  American  To- 
bacco Co 49,  126,  144 

United  States  v.  Corn  Products 
Eefining  Co 49 

United  States  v.  Eastern  States 
Eetail  Lumber  Dealers  Ass 'n.  132 

United  States  v.  Eastman  Ko- 
dak Co 49,  64 

United  States  v.  International 

Harvester  Co 

48,  53,  68,  69,  70,  88 

United  States  v.  Joint-TraflGlc 
Ass'n 51,  117,  145 

United  States  v.  Keystone 
Watch  Case  Co 64,  88 

United  States  v.  Kissel 125 

United  States  v.  Motion  Pic- 
ture Patents  Co 49 

United  States  v.  Nelson 53,  58 

United  States  v.  New  Depart- 
ure Mfg.  Co 168 


Sec. 

United  States  v.  Pacific  &  Arc- 
tic Ey.  &  Nav.  Co 129 

United  States  v.  Prince  Line. . .   64 

United  States  v.  Quaker  Oats..  53 

United  States  v.  Eeading  Com- 
pany     122 

United  States  v.  Terminal  R.  E. 
Ass  'n  of  St.  Louis 121 

United  States  v.  Trans-Missouri 

Freight  Ass  'n 

51,  68,  113,  117,  138 

United  States  v.  Union  Pacific 
E.  Co 51,  119 

United  States  v.  United  Stales 
Steel  Corporation  64,  88 

United  States  v.  Winslow 168 

United  States   Chemical  Co.  v. 

Provident  Chemical  Co 

6,  7,  8,  16,  17,  53,  55,  56 

United  States  Telephone  Co.  v. 
Central  Union  Co 30,  153 

Urmston  v.  Whitelegg  Bros., 67,  70 

Van  Marter  v.  Babcock 

16,  20,  27,  53 

Vegelahn  v.  Guntner 100 

Vulcan  Powder  Co.  v.  Hercules 

Powder  Co 67,  168 

Walsh  V.  Dwight 27 

Watertown  Thermometer  Co.  v. 

Pool    11 

Weller  v.  Hersee 6 

Western     Wooden- Ware     Ass  'n 

v.  Starkey  20 

Whitney  v.  Slayton 6,  57 

Wickens  v.  Evans 

16,  20,  53,  55,  57 

Wilder  Mfg.  Co.  v.  Corn  Prod- 
ucts Co 153 

Wiley  V.  Baumgardner 11,  14 

Williams  v.  Miles 148 

Wood  V.  Whitehead  Bros 

6,  16,  20,  53,  55,  56 

Woodberry  v.  McClurg 68 

WoodrufE  V.  Berry 49 


XIU 


CONTRACTS  AND  COMBINATIONS 
IN  RESTRAINT  OF  TRADE 


PART  1 
THE  COMMON  LAW 


CHAPTER  I 

CONTRACTS  TO  REFRAIN  FROM  DOING  BUSINESS  OR 

FROM  ENTERING  OR  CARRYING  ON 

AN  OCCUPATION 

Section  1 

the  mere  contract  to  refrain  from  doing  business,  or  from 
entering  and  carrying  on  an  occupation 

§  1.  It  was  long  ago  assumed  that  a  contract  not  to  engage  in  a 
given  business  or  occupation  would  be  void  where  the  promisor 
was  already  engaged  in  it  and  the  promisee  was  not  and  did  not 
intend  to  be.* 

1 — Mitchel    V.    Reynolds,    1    P.  signing  fellow  should  work  him  up 

Wms.   181    (171)    [9]    (numbers  in  to  such  a  pitch  as,  for  a  trifling 

square     brackets     throughout     the  matter,  to  give  a  bond  not  to  work 

notes   to  this   volume  refer  to  the  it  again,  and  afterwards,  when  the 

pages  of   the   author's  "Cases  on  necessities  of  his  family,  and  the 

Contracts  and  Combinations  in  Ee-  cries  of  his  children,  send  him  to 

straint  of  Trade")    (".     .     .     for  the   loom,    should    take    advantage 

suppose  (as  that  case  seems  to  be)  of  the  forfeiture,  and  put  the  bond 

a    poor    weaver,    having   just   met  in  suit;  I  must  own,  I  think  this 

with  a  great  loss,  should,  in  a  fit  of  such  a  piece  of  villainy,  as  is  hard 

passion  and  concern,  be  exclaiming  to  find  a  name  for;  and  therefore 

against  his  trade,  and  declare,  that  cannot  but  approve  of  the  indigna- 

he  would  not  follow  it  any  more,  tion  that  judge  expressed,  though 

etc.,   at    which   instant,    some    de-  not  his  manner  of  expressing  it,") 

Kales  Sum.  E.  of  T. — 1  1 


§i: 


THE   COMMON   LAW 


[Ch.l 


The  reasons  alleged  were :  the  disregard  of  the  social  interest 
in  the  freedom  of  individuals  to  enter  whatever  business  they 
pleased;  the  mischief  to  the  party  by  the  loss  of  his  livelihood 
and  the  subsistence  of  his  family ;  the  mischief  to  the  public  by 
depriving  it  of  a  useful  member;  and  the  tendency  toward 
monopoly.  The  last  would  seem  to  be  negligible.  Today,  such 
is  the  freedom  and  ease  of  transportation  and  of  entering  other 
occupations  and  businesses  that  the  danger  of  the  loss  of  liveli- 
hood and  subsistence  for  a  family  is  not  such  as  to  cause  great 
concern.  The  same  changes  make  it  less  likely,  than  formerly, 
that  the  public  will  feel  the  loss  of  the  service  of  any  of  its  mem- 
bers. 2  But  the  social  interest  in  all  being  free  to  enter  what- 
ever business  they  please  is  still  so  far  operative  that  the  mere 
contract  to  refrain  from  carrying  on  a  business  or  occupation 
will  be  void. 

This  last  consideration  would,  it  is  believed,  be  sufficient  to 
invalidate  the  contract  even  though  the  promisor  had  not  at  the 


2 — Herreshoff  v.  Boutineau,  17 
E.  I.  3,  6  (1890)  (quotation  given 
post  §  7  note  13). 

But  see  Kellogg  v.  Larkin,  3 
Finn.  (Wis.)  123  (1851)  [151] 
("The  loss  to  society  of  a  valuable 
member  is  as  great  a  public  injury 
now  as  it  ever  was,  and  as  great 
here  as  anywhere.  I  hope,  indeed, 
that  the  market  value  of  a  human 
being  is  higher  now  than  it  was  in 
England  at  the  beginning  of  the 
eighteenth  century,  when  the  case 
of  Mitchel  v.  Eeynolds  was  de- 
cided. The  capacity  of  an  individ- 
ual to  produce  (using  that  word  in 
its  largest  sense)  constitutes  his 
value  to  the  public.  That  branch 
of  industry  in  which  a  man  has 
been  educated,  and  to  which  he  is 
accustomed,  and  for  the  abandon- 
ment of  which  he  demands  compen- 
sation, is  supposed  to  be  the  one  in 
which  he  can  render  the  greatest 


profit.  The  value  of  what  he  pro- 
duces belongs  to  himself.  The 
actual  product  belongs  immedi- 
ately to  him  who  employs  him, 
but  mediately  to  the  state, 
and  goes  to  swell  the  aggre- 
gate of  public  wealth.  Therefore, 
the  law  says  to  each  and  every 
tradesman:  You  shall  not,  for  a 
present  sum  in  hand,  alien  your 
right  to  pursue  that  calling  by 
which  you  can  produce  the  most 
and  add  the  most  to  the  public 
wealth,  and  compel  yourself  to  a 
life  of  supineness  and  inaction,  or 
to  labor  in  some  department  less 
profitable  to  the  state.  And  if  any 
man,  mindful  of  his  own  gain 
alone,  but  not  of  the  public  good, 
will  bargain  with  you  to  that  effect 
you  are  held  discharged  from  such 
bargain  btwause  of  the  advantage 
that  will  arise  to  the  public  from 
so  holding.") 


Ch.  1]  CONTBACTS  NOT  TO  DO  BUSINESS  [§  2 

time  of  his  promise  entered  any  business  or  occupation  at  all, 
and  was  not  contemplating  doing  so. 

The  above  conclusions  presuppose  the  fact  that  the  business 
is  one  which  the  public  is  interested  in  having  carried  on.  If 
the  business  or  occupation  is  one  which,  while  lawful,  is  re- 
garded as  contrary  to  the  public  interest,  such  as  the  liquor 
business,  it  has  been  held  that  the  mere  contract  to  refrain  from 
entering  or  carrying  on  such  a  business  is  valid.^ 

Section  2 

restrictive  contracts  accompanying  the  promisor's  entry 
into  an  appueistticeship  arrangement,  or  made  upon  his 
entry  into  the  service  of  the  promisee  for  the  purpose 
op  learning  a  trade  or  business 

§2.  We  have  the  following  possible  considerations  against 
the  validity  of  such  covenants:  The  social  interest  in  the  free- 
dom of  individuals  to  enter  what  business  they  please  is  violated. 
The  contract  tends  to  deprive  the  promisor  of  his  livelihood,  the 
public  of  a  useful  member,  and  to  eliminate  competition  between 
the  promisor  and  the  promisee.  On  the  other  side  we  have  the 
desirability  of  permitting  the  teaching  of  apprentices  or  em- 
ployees by  masters.  This  involves  providing  the  means  whereby 
they  may  obtain  their  instruction  on  the  best  terms  possible. 
The  apprentice  must  purchase  the  instruction.  Practically,  the 
easiest  way  for  him  to  do  it  is  to  give  his  services  in  part  pay- 
ment and  a  covenant  not  to  compete  in  lieu  of  the  balance.  If 
the  covenant  not  to  compete  is  not  allowed,  the  apprentice  or 
employee  must  pay  cash  on  the  basis  that  the  master  is  training 
a  competitor.  The  result  would  be  poor  instruction  and  a  price 
which  an  apprentice  or  employee  would  find  difficulty  in  meeting. 
If  the  restriction  is  not  broader  than  the  business  of  the  mas- 
ter, the  apprentice  would  have  a  large  territory  in  which  to 
carry  on  the  trade  or  business  which  he  has  learned,  and  other 

3 — ^Harrison  v.  Lockhart,  25  Ind. 
112  (1865);  McAlister  v.  Howell, 
42  Ind.  15  (1865). 

3 


§2]  TH£  COMMON  LAW  [Ch.  1 

apprentices  learning  the  same  trade  in  other  districts  could  come 
into  the  district  of  the  master  and  there  compete  with  him. 

Upon  a  balancing  of  the  interests,  it  is  clear  that  where  the 
restriction  given  by  the  apprentice  or  employee  is  not  broader 
than  the  master's  business,  it  is  valid.* 

§3.  Nor  is  it  any  objection  to  the  restriction  that  it  is  to 
continue  for  the  life  of  the  promisor,  and  hence  may  continue 
after  the  master  has  died  or  gone  out  of  business.*  The  contract 
is  still  an  asset  of  the  master's  estate  after  he  is  dead  or  when 
he  sells  his  business  or  takes  in  a  partner.  Where  he  has  aban- 
doned his  business,  equity  would  no  longer  give  an  injunction, 
and  the  damages  at  law  would  be  nominal. 

§  4.  Formerly  it  was  said  that  the  consideration  must  be  good 
and  adequate,  so  as  to  make  it  a  proper  and  useful  contract.^  The 
later  view  is  that  a  legal  consideration  which  is  also  of  some  value 
must  be  given.  But  apparently  the  court  will  not  undertake 
to  weigh  the  value  of  the  consideration  against  what  is  given 
in  order  to  determine  its  adequacy.''^ 

§5.  Suppose,  however,  that  a  country-wide  business  should 
exact  such  restrictive  covenants  of  all  employees  entering  the 
business  or  of  all  persons  entering  the  business  in  any  executive 
capacity,  so  that  they  would  have  ho  choice  but  to  stay  or  change 
their  occupation  completely.  Would  not  the  balance  of  consid- 
erations be  against  supporting  the  validity  of  such  arrange- 
ments? Here  the  loss  of  a  livelihood  might  be  a  reality.  The 
public  might  in  fact  be  deprived  of  a  useful  member.    The  ten- 

4— Eousillon  v.  Eousaion,  14  Ch.  210;  Oo.  Eliz.  872;  N07,  98;  Owen, 

D.  351  (1880);  Badische  V.  Schott,  143;  2  Keb.  377;  March,  191; 
L.  E.  [1892]  3  Ch.  447;  Morse  Show.  2  (not  weU  reported);  2 
Twist  Drill  &  Machine  Co.  v.  Morse,  Saund.  155. 

103  Mass.  73  (1869);  Herreshoff  v.  "Or      secondly,      particular      re- 

Boutineau,  17  R.  I.  3   (1890).  straints  are  with  consideration. 

5 — Hitchcock   v.    Coker,    6    A.    &  "Where  a  contract  for  restraint 

E.  438  (1837)  [12].  of  trade  appears  to  be  made  upon 
6 — Mitchel  v.  Reynolds,  1  P.  Wms.  a  good  and  adequate  consideration, 

181    (1711)     [4]    ("Particular   re-  so  as  to  make  it  a  proper  and  use- 
strains    are    either,    first,    without  f ul  contract,  it  is  good. ' ') 
consideration,  all  which  are  void  by  7 — Hitchcock  v.  Coker,  6  A.  &  E. 
what  sort  of  contract  soever  created.  438  (1837)  [26]  and  see  cases  cited 
2  H.  5;   5  Moor  115,  242;  2  Leon  post  §  7  note  12. 


Ch.  1]  CONTRACTS  NOT  TO  DO  BUSINESS  [{6 

dency  toward  monopoly  might  become  decisive.  The  hiring  in 
such  a  business  is  not  really  for  the  purpose  of  training  men  to 
go  out  and  conduct  a  similar  business,  but  rather  with,  the 
object  of  keeping  them  permanently.  A  restriction,  then,  upon 
their  going  into  any  other  similar  business  could  hardly  be 
regarded  as  a  part  of  the  price  for  teaching  them.  Rather  must 
it  be  looked  upon  as  a  method  of  hampering  the  employer's  com- 
petitors. Hence,  such  wholesale  restrictions  would  point  to  a 
monopoly  purpose,  both  in  regard  to  the  business  and  with 
respect  to  securing  the  use  of  the  labor  of  certain  individuals. 

Section  3 

restrictive  contracts  accompanying  the  sale  of  a  business, 
which  sale,  however,  is  not  made  to  a  competitor 

§6.  (1)  If  the  restriction  is  not  broader  than  the  business 
sold  and  is  operative  over  a  territory  less  than  that  of  any  state 
where  the  restriction  applies,  it  is  valid.®  The  restriction  is  an 
essential  part  of  any  complete  sale  of  the  business.  The  social 
interest  in  the  freedom  of  individuals  to  sell  at  the  best  price 
obtainable  ®  balances  any  social  interest  in  the  freedom  of  indi- 
viduals to  enter  what  business  they  please. 

8— Bowser     v.     Bliss,     7     Black,  160  N.  Y.  473  (1887)   [60]  ("It  is 

(Ind.)  344  (1845) ;  National  Enam-  clear  that  public  policy  and  the  in- 

eling  &  Stamping  Co.  v.  Haberman,  terests  of  society  favor  the  utmost 

120  Fed.  415    (1903);    Holbrook  v.  freedom     of    contract,    within    the. 

"Waters,   9   How.   Pr.    (N.   Y.)    335  law,  and  require  that  business  trans- 

(1854);  Weller  v.  Hersee,  10  Hun.  actions  should  not  be  trammeled  by 

(N.    Y.)    431    (1877);    Hursen    v.  unnecessary    restrictions");      Les- 

Gavin,  162  111.  377   (1896);   Duffy  lie    v,    Lorillard,    110    N.    Y.    519 

V.    Shockey,    11    Ind.    70    (1858);  (1888)      [69]      ("The     object     of 

Whitney    v.    Slayton,    40    Me.    224  government,   as   interpreted    by   the 

(1855) ;    Doty  v.  Martin,  32   Mich.  judges,   was   not    to  interfere   with 

462  (1875) ;  Dunlop  v.  Gregory,  10  the  free  right  of  man  to  dispose  of 

N.  Y.  241  (1851);  Smith's  Appeal,  his    property    or    of    his    labor."); 

113  Pa.  St.  579,  590   (1886) ;   Har-  "Wood  v.  "Whitehead  Bros.  Co.,  165 

kinson's    Appeal,    78    Pa.    St.    196  N.   Y.  545    (1901)    [76]    ("In  the 

(1875) ;    Oregon  Steam  Navigation  present    practically    unlimited    field 

Co.    V.    "Winsor,    87    U.    S.    64    (20  of    human    enterprise    there    is    no 

"Wall.)    (1873).  good  reason  for  restricting  the  free- 

9 — ^Diamond  Match  Co.  v.  Roeber,  dom  to  contract,  or  for  fearing  in- 


§7] 


THE  COMMON  LAW 


[Ch.l 


§  7.  Formerly  it  was  urged  against  the  restriction  that  the 
seller  might  become  a  charge  upon  the  community  because  he 
could  not  carry  on  his  trade  or  business.  ^*^    This  was  at  once  met 


jury  to  the  public  from  contracts 
which  prevent  a  person  from  carry- 
ing on  a  particular  business."); 
National  Benefit  Co.  v.  Union  Hos- 
pital Co.,  45  Minn.  272  (1891)  [96] 
("A  contract  may  be  illegal  on 
grounds  of  public  policy  because  in 
restraint  of  trade,  but  it  is  of  para- 
mount public  policy  not  lightly  to 
interfere  with  freedom  of  con- 
tract."); United  States  Chemical 
Co.  V.  Provident  Chemical  Co.,  64 
Fed.  946  (1894)  [102]  (''In  dis- 
cussing this  phase  of  the  subject, 
we  must  not  lose  sight  of  some  other 
principles,  the  disregard  of  which 
would  be  more  harmful  to  public 
interest  than  monopolies.  The  right 
to  contract  is  a  cardinal  element  of 
constitutional  liberty,  and,  as  such, 
should  be  jealously  guarded. ' ') ; 
Anchor  Electric  Co.  v.  Hawkes,  171 
Mass.  101,  105  (1898)  ("The  gen- 
eral principle  that  arrangements  in 
restraint  of  trade  are  not  favored 
is,  however,  firmly  established  in 
law,  and  now,  as  well  as  formerly, 
is  given  effect  whenever  its  appli- 
cation wiU  not  interfere  with  the 
right  of  everybody  to  make  reason- 
able contracts.  Whenever  one  sells 
a  business  with  its  good  wiU,  it  is 
for  his  benefit,  as  well  as  for  the 
benefit  of  the  purchaser,  that  he 
should  be  able  to  increase  the  value 
of  that  which  he  sells  by  a  contract 
not  to  set  up  a  new  business  in 
competition  with  the  old."); 
Smith's  Appeal,  113  Pa.  St.  579, 
590  (1886)  ("The  principle  is  this: 
Public  policy  requires  that  every 
man  shall  not  be  at  liberty  to  de- 


prive himself  of  the  state  of  his 
labor,  skill  or  talent,  by  any  con- 
tract that  he  enters  into.  On  the 
other  hand,  public  policy  requires 
that  when  a  man  has,  by  skill  or 
by  any  other  means,  obtained  some- 
thing which  he  wants  to  sell,  he 
should  be  at  liberty  to  sell  it  in  the 
most  advantageous  way  in  the  mar- 
ket; and  in  order  to  enable  him  to 
so  sell  it,  it  is  necessary  that  he 
should  be  able  to  preclude  himself 
from  entering  into  competition  with 
the  purchaser. ") ;  Trenton  Pot- 
teries Co.  V.  Oliphant,  58  N.  J.  Eq. 
507  (1899)  [165]  ("A  tradesman, 
for  example,  who  has  engaged  in  a 
manufacturing  business,  and  has 
purchased  land,  installed  a  plant, 
and  acquired  a  trade  connection  and 
good  will  thereby,  may  sell  his 
property  and  business,  with  its 
good  will.  It  is  of  public  interest 
that  he  shall  be  able  to  make  such 
a  sale  at  a  fair  price,  and  that  his 
purchaser  shall  be  able  to  obtain  by 
his  purchase  that  which  he  desired 
to  buy.  Obviously,  the  only  prac- 
tical mode  of  accomplishing  that 
purpose  is  by  the  vendor's  contract- 
ing for  some  restraint  upon  his  acts, 
preventing  him  from  engaging  in 
the  same  business  in  competition 
with  that  which  he  has  sold."); 
Kellogg  V.  Larkin,  3  Pinn.  (Wis.) 
123   (1851)    [142]. 

10 — Mitchel  v.  Reynolds,  1  P. 
Wms.  181  (1711)  [7]  i".  .  .  the 
true  reasons  of  the  distinction  upon 
which  the  judgments  in  these  cases 
of  voluntary  restraints  are  founded 
are,  first,   the  mischief   which  may 


Ch.  1] 


CONTRACTS  NOT   TO  DO  BUSINESS 


[§7 


by  the  requirement  that  the  seller  must  have  received  a  substan- 
tial consideration  for  the  sale  of  his  business.^!  Recently,  how- 
ever, this  requirement  has  been  held  to  be  satisfied  if  some  consid- 
eration of  value  in  addition  to,  or  including,  the  consideration 
necessary  to  make  a  contract  is  given.  The  courts  will  not  go 
into  the  adequacy  of  the  consideration  in  each  particular  case; 
but  will  rely  upon  the  seller  obtaining,  in  general^  the  fair 
equivalent  for  the  sale  of  his  business.^^     Today,  however,  the 

arise  from  them,  -first,  to  the  party,  12 — Hitchcock  v.  Coker,  6  A.  &  E., 

438  (1837)  [26]  ("But  if  by  ade- 
quacy of  consideration  more  is  in- 
tended, and  that  the  court  must 
■weigh  whether  the  consideration  is 
equal  in  value  to  that  which  the 
party  gives  up  or  loses  by  the  re- 
straint under  which  he  has  placed 
himself,  we  feel  ourselves  bound  to 
differ  from  that  doctrine.  A  duty 
would  thereby  be  imposed  upon  the 
court,  in  every  particular  case, 
which  it  has  no  means  whatever  to 
execute.  It  is  impossible  for  the 
court,  looking  at  the  record,  to  say 
whether,  in  any  particular  case,  the 
party  restrained  has  made  an  im- 
provident bargain  or  not.  The  re- 
ceiving instruction  in  a  particular 
trade  might  be  of  much  greater 
value  to  a  man  in  one  condition  of 
life  than  in  another;  and  the  same 
may  be  observed  as  to  other  con- 
siderations. It  is  enough,  as  it  ap- 
pears to  us,  that  there  actually  is 
a  consideration  for  the  bargain;  and 
that  such  consideration  is  a  legal 
consideration,  and  of  some  value. 
Such  appears  to  be  the  case  in  the 
present  instance,  where  the  defend- 
ant is  retained  and  employed  at 
an  annual  salary.");  Lawrence  v. 
Kidder,  10  Barb.  (N.  Y.)  641,  649 
(1851)  ("In  many  of  the  early 
cases  the  language  of  the  courts 
would  seem  to  imply  that  the  ade- 
quacy or  extent  of  the  consideration 


by  the  loss  of  his  livelihood,  and  the 
subsistence  of  his  family;  secondly, 
to  the  public,  by  depriving  it  of  a 
useful  member.");  Gamewell  Fire- 
Alarm  Co.  v.  Crane,  160  Mass.  50 
(1893)  [55]  ("To  exclude  a  per- 
son from  manufacturing  or  selling 
anywhere  in  the  United  States  or 
in  the  world  machinery  designed  for 
certain  purposes,  in  which  that  per- 
son has  acquired  great  skill,  may 
operate  to  impair  his  means  of 
earning  a  living.");  Diamond 
Match  Co.  V.  Eoeber,  106  N,  Y.  473 
(1887)  [59];  Leslie  v.  Lorillard, 
110  N.  Y.  519  (1888)  [69];  Oak- 
dale  Manufacturing  Co.  v.  Garst,  18 
R.  L  484  (1894)  [80];  National 
Benefit  Co.  v.  Union  Hospital  Co., 
45  Minn.  272  (1891)  [96];  United 
States  Chemical  Co.  v.  Provident 
Chemical  Co.,  64  Fed.  946  (1894) 
[102]. 

11 — Mitchel  V.  Eeynolds,  1  P. 
Wms.  181  (1711)  [4]  ("Particular 
restraints  are  either,  -first,  without 
consideration,  all  which  are  void  by 
what  sort  of  contract  soever  created. 
.  .  .  Or  secondly,  particular  re- 
straints are  with  consideration. 
Where  a  contract  for  restraint  of 
trade  appears  to  be  made  upon  a 
good  and  adequate  consideration,  so 
as  to  make  it  a  proper  and  useful 
contract,  it  is  good-") 


§7] 


THE   COMMON  LAW 


[Ch.l 


fear  of  the  seller  beeomiiig  a  charge  upon  the  cwnmunity  has 
practically  disappeared.    If  the  business  sold  is  small,  the  seller 


had  something  to  do  with  the 
validity  of  the  contract.  They  say 
that  a  mere  pecuniary  consideration 
is  not  sufficient;  that  there  must  be 
something,  although  it  does  not  ap- 
pear very  clearly  what,  added  to 
this  to  support  the  contract.  This 
idea,  however,  of  the  necessity  of 
any  greater  or  other  consideration 
for  a  contract  of  this  description, 
than  any  other,  was  obviously  un- 
foimded,  and  has  been  exploded  by 
the  recent  cases  [Hitchcock  v. 
Coker,  supra,  Green  v.  Price,  13  M. 
&  W.  695  (1845)]");  Duffy  v. 
Shoekey,  11  Ind.  70,  73  (1858)  (' '  As 
to  the  question  of  the  adequacy  of 
the  consideration,  we  are  inclined 
to  view  this  as  we  would  any  other 
contract  made  by  parties  capable  of 
contracting.  They  should,  in  the 
absence  of  fraud,  be  presumed  to 
have  determined  that  point  for  them- 
selves. .  .  .  This  presumption 
is  peculiarly  proper  in  this  case, 
for  the  reason  that  we  are  left  in 
doubt  as  to  how  much  the  considera- 
tion to  be  paid  by  the  defendant 
was.  In  addition  to  the  300  dollars, 
he  was  to  relieve  the  planitiffs  from 
their  contracts  with  agents — to  what 
amount  we  are  not  informed — ^he 
was  to  take  the  marble,  carved  or 
not,  remaining  after  the  completion 
of  the  outstanding  contracts  of 
plaintiffs.  The  value  of  the  marble 
thus  disposed  of  is  not  given.  He 
was  also  to  buy  of  plaintiffs  marble 
at  fixed  prices;  but  whether  those 
prices  were  advantageous  to  the 
plaintiffs,  or  defendant,  we  are  not 
appraised  by  the  pleadings  or  evi- 
dence.**); Hubbard  v.  Miller,  27 
Mieh.   15,  21    (1873)    ("The   fact 


that  complainant  paid  no  more  than 
the  cost  of  the  articles  at  Grand 
Haven  can  make  no  difference. 
Where  a  consideration  recognized  by 
law  as  being  valuable  is  paid,  the 
law  very  properly  allows  the  parties 
to  judge  for  themselves  of  the 
sufficiency  in  value  of  such  con- 
sideration for  their  contracts.  We 
cannot,  therefore,  enter  into  the 
question  whether  the  consideration 
was  commensurate  in  value  with  the 
restraint  imposed.  See  Hitchcock 
V.  Coker,  6  A.  &  E.  438  (1837); 
Pilkington  v.  Scott,  15  M.  &  W. 
657  (1846) ;  Hartley  v.  Cummings, 
5  C.  B.  247  (1847).  And  there  is 
no  reason  for  holding  that,  without 
the  restraint  contracted  for,  com- 
plainant would  have  been  willing 
to  purchase  for  the  price  he  gave, 
nor  can  we  say  that  the  vendors 
could  have  sold  at  that  price  with- 
out such  stipulation.  In  fact,  we 
must  infer  that,  in  their  opinion 
they  could  not  readily  have  done  so 
without  it,  or  they  would  not  have 
given  it.  It  is  clear,  at  all  events, 
that  they  thought  the  sale  with  the 
stipulation  an  advantageous  one  or 
they  would  not  have  made  it.  The 
contract  must,  therefore,  be  held 
fair,  reasonable  and  valid,  unless 
too  general  and  unlimited  as  to 
place,  as  insisted  under  the  second 
objection.'*)  See  also  Holbrook  v. 
Waters,  9  How.  Pr.  (N.  Y.)  335 
(1854) ;  Pierce  v.  Fuller,  8  Mass. 
222  (1811)  (a  consideration  of  one 
dollar  deemed  sufficient  to  support 
the  restrictive  covenant.) 

In  Chapin  v.  Brown,  83  la.  156 
(1891)  [138]  it  would  seem  that 
the  court  regarded  the  evidence  con- 


8 


Ch.l] 


CONTRACTS  NOT   TO  DO  BUSINESS 


may  take  the  consideration  and  start  elsewhere.  If  the  busi- 
ness is  so  large  that  the  restriction  probably  covers  a  wide  area, 
the  consideration  paid  to  the  seller  will  usually  be  such  as  to 
keep  him  from  becoming  a  public  charge.  ^^    Where  the  restric- 


cerning  the  particular  transaction 
as  failing  to  show  any  adequate  con- 
sideration. This  can  hardly  be  sup- 
ported, because  the  recitals  of  the 
contract  itself  showed  plainly  that 
the  seller  was  parting  with  a  losing 
branch  of  his  business  without  hav- 
ing it  fall  into  the  hands  of  those 
who  competed  with  him  in  his  other 
lines  of  business.  The  considera- 
tion was  legally  sufficient  to  make  a 
contract,  and  it  was  a  business 
transaction  on  its  face  in  which  a 
consideration  of  value  was  given 
for  the  restriction. 

13 — Nordenfelt  v.  Maxim  Nor- 
denfelt  Guns  &  Ammunition  Co,, 
[1894]  A.  C.  535  [33]  (The  fact 
that  the  seller  had  become  a  pauper 
in  the  particular  case  made  no  dif- 
ference.) ;  Anchor  Electric  Co.  v. 
Hawkes,  171  Mass.  101,  105  (1898) 
("The  changes  in  the  methods  of 
doing  business  and  the  increased 
freedom  of  communication  which 
have  come  in  recent  years  have  very 
materially  modified  the  view  to  be 
taken  of  particular  contracts  in 
reference  to  trade.  The  compara- 
tive ease  with  which  one  engaged 
in  business  can  turn  his  energies  to 
a  new  occupation,  if  he  contracts  to 
give  up  his  old  one,  makes  the  hard- 
ship of  such  a  contract  much  less 
for  the  individual  than  formerly, 
and  the  commercial  opportunities 
which  open  the  markets  of  the 
world  to  the  merchants  of  every 
country  leave  little  danger  to  the 
community  from  an  agreement  of 
an  individual  to  cease  to  work  in  a 


particular  field. ' ')  ;  Herreshoff  v. 
Boutineau,  17  E.  I.  3,  6  (1890) 
("In  the  days  of  the  early  Eng- 
lish cases,  one  who  could  not  work 
at  his  trade  could  hardly  work  at 
all.  The  avenues  to  occupation  were 
not  as  open  nor  as  numerous  as 
now,  and  one  rarely  got  out  of  the 
path  he  started  in.  Contracting  not 
to  follow  one's  trade  was  about 
the  same  as  contracting  to  be  idle, 
or,  to  go  abroad  for  employment. 
But  this  is  not  so  now.  It  is  an 
every-day  occurrence  to  see  men 
busy  and  prosperous  in  other  pur- 
suits than  those  to  which  they  were 
trained  in  youth;  as  well  as  to  see 
them  change  places  and  occupations 
without  depriving  themselves  of  the 
means  of  livelihood,  or  the  state  of 
the  benefit  of  their  industry.  It 
would,  therefore,  be  absurd,  in  the 
light  of  this  common  experience, 
now  to  say  that  a  man  shuts  him- 
self up  to  idleness  or  to  expatria- 
tion, and  thus  injures  the  public, 
when  he  agrees,  for  a  sufficient  con- 
sideration, not  to  follow  some  one 
calling  within  the  limits  of  a  par- 
ticular state.  There  is  no  expatria- 
tion in  moving  from  one  state  to 
another;  and  from  such  removals 
a  state  would  be  likely  to  gain  as 
many  as  it  would  lose.");  Kellogg 
V.  Larkin,  3  Finn.  (Wis.)  123  (1851) 
[149]  ("The  opportunities  for  em- 
ployment are  so  abundant,  and  the 
demand  for  labor  on  all  sides  is  so 
pressing  and  urgent  and  the  supply 
80  limited,  that  I  much  question, 
were  we  to  consider  the  subject  as 


9 


§8] 


THE  COMMON  LAW 


[Ch.l 


tion  is  given  by  a  corporation  the  fear  that  the  promisor  will 
become  a  public  charge  has  no  place.^* 

§  8.  Another  ground  formerly  expressed  for  holding  invalid 
these  restrictive  covenants  was  that  they  might  leave  a  given 
community  unserved  by  anyone  capable  of  carrying  on  a  given 
business.  ^^  This  may  have  been  an  important  consideration  in 
the  case  of  a  business  confined  to  a  small  territory  at  a  time  when 
others  could  not  mobilize  readily  at  a  given  point.  It  is  out  of 
place  today,  when  the  ease  and  freedom  of  transportation  are  such 
that  if  one  man  goes  out  of  business  in  a  given  locality,  there 
is  little  need  to  fear  that  the  public  will  suffer  by  reason  of  the 
failure  of  anyone  to  serve  it.^^    Besides,  when  a  business  is  sold 


res  Integra,  if  we  should  feel  author- 
ized to  hold  that  a  man  had  en- 
dangered his  own  livelihood  and  the 
subsistence  of  his  family,  by  an 
agreement  which  merely  excluded 
him  from  exercising  the  trade  of  a 
blacksmith  or  a  shoemaker,  leaving 
all  the  other  departments  of  me- 
chanical, agricultural  and  commer- 
cial industry  open  to  him. ' ') 

14 — United  States  Chemical  Co. 
V.  Provident  Chemical  Co.,  64  Fed. 
946  (1894)  [102]  ("Among  the 
potent  reasons  first  assigned  against 
such  contracts  was  that  the  person 
restrained  by  thus  surrendering  his 
chosen  occupation — one  for  which  he 
has  been  especially  prepared  — 
might  become  a  public  charge,  and 
the  public  be  injured  in  being  de- 
prived of  his  personal  skill  in  the 
avocation  to  which  he  had  been 
brought  up.  Such  reasons  cannot  be 
applied  to  artificial  persons  without 
absurdity. ' ') 

15— Mitchel  v.  Reynolds,  1  P. 
Wms.  181  (1711)  [7]  ante  §7 
note  10. 

16 — Diamond  Match  Co.  v.  Eoe- 
ber,  106  N.  T.  473  (1887)  [59] 
("He  [Parker,  C.  J.,  in  Mitchel  v. 
Reynolds]    refers  to  other  reasons, 


viz.,  the  mischief  which  may  arise 
(1)  to  the  party  by  the  loss  by  the 
obligor  of  his  livelihood  and  the  sub- 
sistence of  his  family,  and  (2)  to 
the  public  by  depriving  it  of  a  use- 
ful member,  and  by  enabling  corp- 
orations to  gain  control  of  the  trade 
of  the  kingdom.  It  is  quite  obvious 
that  some  of  these  reasons  are  much 
less  forcible  now  than  when  Mitchel 
V.  Reynolds  was  decided.  Steam  and 
electricity  have  for  the  purposes  of 
trade  and  commerce  almost  annihil- 
ated distance,  and  the  whole  world 
is  now  a  mart  for  the  distribution 
of  the  products  of  industry.  The 
great  diffusion  of  wealth,  and  the 
restless  activity  of  mankind  striving 
to  better  their  condition,  have 
greatly  enlarged  the  field  of  human 
enterprise,  and  created  a  vast  num- 
ber of  new  industries,  which  give 
scope  to  ingenuity  and  employment 
for  capital  and  labor.");  National 
Benefit  Co.  v.  Union  Hospital  Co., 
45  Minn  272  (1891)  [96]  ("More- 
over, as  cheaper  and  more  rapid 
facilities  for  travel  and  transporta- 
tion gradually  changed  the  manner 
of  doing  business,  so  as  to  enable 
parties  to  conduct  it  over  a  vastly 
greater  territory  than  formerly,  the 


10 


Ch.  1]  CONTRACTS  NOT  TO  DO  BUSINESS  [§  lO 

by  one  to  another  the  public  is  substantially  as  well  off  as  it  was 
before. 

§9.  The  tendency  to  monopoly  by  the  elimination  of  com- 
petition is,  in  this  class  of  cases,  the  slightest.  No  existing  com- 
petition has  been  eliminated.  One  man  has  taken  another's 
place.  It  is  doubtful  and  entirely  speculative  whether  the  buyer 
would  have  competed  if  he  could  not  have  purchased.  About  all 
that  can  be  said  is  that  there  is  less  probability  that  the  purchaser 
would  have  competed  if  he  could  not  have  bought,  than  that  the 
seller  would  compete  if  he  had  not  entered  into  a  restrictive 
covenant.^'^ 

§  10.  (2)  If  the  restriction  is  not  broader  than  the  business 
sold  but  extends  up  to,  or  beyond,  the  limits  of  any  state  where  it 
is  operative,  it  should  still  be  held  valid.  The  rational  test  is  the 
extent  of  the  business  sold  and  not  the  boundaries  of  some  polit- 
ical subdivision  of  the  country.  This  is  the  view  of  the  more 
recent  cases,  where  the  restriction  has  been  held  valid  even  when 
the  sale  was  to  a  competitor.is  The  argument  that  such  restric- 
tions tend  to  force  the  promisor  to  leave  the  state  is  answered 
by  the  fact  that  this  does  not  cause  him  to  leave  his  country, 
and  that  what  is  lost  by  one  man  leaving  the  state  is  gained  by 
others  coming  into  the  state.^^  The  older  decisions,  for  a  time 
at  least,  appear  to  have  made  an  arbitrary  rule  that  a  restric- 
tion which  operated  throughout  a  state  was  void  even  though 
not  broader  than  the  business  sold.^o 

courts  were  necessarily  compelled  to  the  covenant  to  the  third,  and  he 

readjust  the  test  or  standard  of  the  may  release  it   to  the  covenantor: 

reasonableness  of  restrictions  as  to  Gompers  v.  Eochester,  56  Pa.  St. 

place.")  194  (1867). 

17 — ^A    restrictive    covenant    may  18 — Nordenfelt    v.    Maxim    Nor- 

be  found  to  be  expressed  by  inter-  denfelt  Guns  Co.   [1894]  A.  C.  535 

pretation  from  the  sale  of  a  busi-  [33];   Diamond  Match  Co.  v.  Eoe- 

ness  and  good  will,  in  which  case  ber,  106  N.  Y.  473  (1887)   [55]. 

the  covenantor  cannot  hold  himself  19 — Herreshoff   v.   Boutineau,   17 

out  as  carrying  on  his  former  busi-  B.  I,  3,   6   (1890)    ("There  is  no 

ness  at  a  new  address:    Hall's  Ap-  expatriation    in    moving    from    one 

peal,  60  Pa.  St.  458  (1869).  State   to   another;    and   from   such 

The   assignment   by   two   out   of  removals  a  State  would  be  likely  to 

three   covenantees   to   the  third   of  gain  as  many  as  it  would  lose.") 

the  business  protected  by  the  cove-  20 — Taylor     v.     Blanchard,      13 

nant,  operates  as  an  assignment  of  Allen  (Mass.)  370  (1866);  Lufkin 

II 


§11] 


THE  COMMON  LAW 


[Ch.l 


§  11.  (3)  If  the  restriction  is  broader  than  the  business  sold 
and  the  business  sold  is  not  coextensive  with  the  boundaries  of 
the  United  States,  it  is  void.^i  The  seller  is  doing  more  than  sell 
what  he  has.  He  is  selling  a  business  in  which  he  might  en- 
gage in  the  future.  The  public  policy  therefore  in  favor  of  his 
being  permitted  to  sell  what  he  has,  freely  and  at  the  best  price, 
is  not  applicable.  The  social  interest  in  freedom  of  individuals 
to  enter  what  business  they  please  is  not  balanced  by  any  social 
interest  in  freedom  to  sell  at  the  best  price  obtainable.  It  may 
be  that  today  there  is  little  danger  that  the  seller  will  become 
a  charge  on  the  community  22  but  that  the  public  may  be  deprived 


Rule  Co.  V.  Pringeli,  57  Oh.  St. 
596  (1898)  (Both  of  these  cases 
involve  sales  to  competitors,  but  no 
suggestion  has  been  made  that  the 
rule  of  these  cases  was  limited  to 
the  case  of  a  sale  to  a  competitor.) ; 
Anchor  Electric  Co.  v.  Hawkes,  171 
Mass,  101  (1898)  where  the  re- 
striction accompanied  a  combination 
of  competitors,  seems  contra  to 
Taylor  v.  Blanchard  supra. 

21— Trenton  Potteries  Co.  v.  Oli- 
phant,  58  N.  J.  Eq.  507  (1899) 
[161];  Bishop  v.  Palmer,  146  Mass. 
469  (1888)  [45];  Berlin  Machine 
Works  V.  Perry,  71  Wis.  495 
(1888);  Alger  v.  Thaeher,  19  Pick. 
(Mass.)  51  (1837) ;  Lawrence  v. 
Kidder,  10  Barb.  (N.  Y.)  641 
(1851);  Lange  v.  Werk,  2  Oh.  St. 
519  (1853);  Thomas  v.  Miles,  3 
Oh.  St.  274  (1854) ;  Wiley  v.  Baum- 
gardner,  97  Ind.  66  (1884). 

A  fortiori,  it  is  illegal  if  in  addi- 
tion to  the  restriction  being  broader 
than  the  business  sold,  the  sale  is  to 
a  competitor:  Gamewell  Fire- 
Alarm  Co.  v.  Crane,  160  Mass.  50 
(1893)  [50]  (Sale  of  one  out  of 
fifteen  competitors  in  the  United 
States,  to  another.) 

In  some  cases  the  courts  have  not 
been  careful  to  determine  whether 


the  restriction  as  to  territory  was 
broader  than  the  actual  extent  of 
the  seller's  business  or  not:  Dia- 
mond Match  Co.  V.  Eoeber,  106  N. 
Y.  473  (1887)  [55];  Gamewell 
Fire-Alarm  Co.  v.  Crane,  160  Mass. 
50    (1893)    [54]. 

In  Tode  v.  Gross,  127  N.  Y.  480 
(1891)  where  the  business  sold  was 
dependent  upon  a  secret  process, 
which  was  also  sold,  no  inquiry 
seems  to  have  been  made  as  to 
whether  the  covenant  (which  was 
unlimited)  was  broader  than  the 
business  sold. 

But  in  Watertown  Thermometer 
Co.  V.  Pool,  51  Hun.  (N.  Y.)  157 
(1889)  the  court  seems  to  have  sus- 
tained a  restrictive  covenant  which 
was  broader  than  the  business  sold, 
going  upon  the  reasonableness  of  the 
advantage  to  the  vendee. 

22 — But  see  Gamewell  Fire- 
Alarm  Co.  v.  Crane,  160  Mass.  50 
(1893)  [55]  ("To  exclude  a  per- 
son from  manufacturing  or  selling 
anywhere  in  the  United  States  or  in 
the  world  machinery  designed  for 
certain  purposes,  in  which  that  per- 
son has  acquired  great  skill,  may 
operate  to  impair  his  means  of  earn- 
ing a  living.") 


12 


Ch.  1] 


CONTRACTS  NOT  TO  DO  BUSINESS 


[§13 


of  the  benefit  of  his  entering  the  business,  and  that  a  possible 
competitor  may  be  eliminated,  constitute  an  appreciable  dan- 
ger.23  It  has  even  been  suggested  that  the  fact  that  the  restric- 
tion is  broader  than  the  business  sold  gives  rise  to  the  inference 
that  it  is  exacted  for  the  actual  purpose  of  monopoly,^^  but 
this  seems  hardly  so  today. 

§  12.  The  restriction  may  be  broader  than  the  business  sold, 
because  it  relates  to  a  territorial  area  larger  than  that  in  which 
the  business  was  carried  on,25  or  because  it  concerns  a  related 
business  which  was  not  not  actually  carried  on  by  the  seller.^s 

§13.  "When  a  professional  man  sells  his  practice  and  cove- 
nants not  to  carry  it  on  in  the  place  in  question  for  the  remainder 
of  his  life,  it  has  been  argued  that  the  restriction  is  broader  than 
the  necessities  of  the  case  require,  since  it  would  still  be  in  oper- 
ation if  the  buyer  abandoned  practice  or  died  in  the  lifetime  of 
the  seller.27  The  reply  is  that  just  as  the  seller  has  sold  his  prac- 
tice to  the  buyer,  so  the  buyer  may  again  sell  his  practice  to 
another  buyer  or  take  in  a  partner.^s    Even  if  the  first  buyer 


23 — ^Bishop  V.  Palmer,  146  Mass. 
469  (1888)  [48]  ("Two  principal 
grounds  on  which  such  contracts  are 
held  to  be  void  are  that  they  tend 
to  deprive  the  public  of  the  services 
of  men  in  the  employments  and 
capacities  in  which  they  may  be 
most  useful,  and  that  they  expose 
the  public  to  the  evils  of  monop- 
oly. ")  ;  Game  well  Fire- Alarm  Co. 
V.  Crane,  160  Mass.  50  (1893)  [55] 
("The  principal  object  of  the  stipu- 
lation was,  we  think,  to  prevent  the 
manufacture  or  sale  by  the  defend- 
ant of  any  instruments  which  would 
serve  the  same  purpose  as  those 
made  and  sold  by  the  plaintiff,  and 
thus  to  enable  the  plaintiff  more 
completely  to  control  the  market.") 

24— Mitchel  v.  Reynolds,  1  P. 
Wms.  181  (1711)  [9]  ("It  shows 
why  a  contract  not  to  trade  in  any 
part  of  England,  though  with  con- 
sideratioii,    is    void,    for    there    is 


something  more  than  a  presumption 
against  it,  because  it  can  never  be 
useful  to  any  man  to  restrain  S,n- 
other  from  trading  in  all  places, 
though  it  may  be,  to  restrain  him 
from  trading  in  some,  unless  he  in- 
tends a  monopoly,  which  is  a 
crime. ' ') 

25 — Bishop  V.  Palmer,  146  Mass. 
469   (1888)    [45]. 

26 — Gamewell  Fire-Alarm  Co.  v. 
Crane,  160  Mass.  50  (1893)  [50] 
(The  seller,  who  was  a  manufac- 
turer, covenanted  not  to  carry  on 
the  business  of  manufacturing  or 
selling,  and  not  to  enter  into  compe- 
tition with  the  buyer  either  directly 
or  indirectly.) 

27 — ^Per  Demnan,  C.  J.,  in  Hitch- 
cock V.  Coker,  6  A.  &  E.  438  (1837) 
[16];  Ver  Van  Fleet,  V.  C,  in 
Mandeville  v.  Harman,  42  N.  J.  Eq. 
185,  193  (1886)   [32,  n.  9]. 

28— French  v.  Parker,  16  E.  I. 


18 


13] 


THE  COMMON  LAW 


[Ch.l 


dies  in  the  lifetime  of  the  seller,  the  fact  that  he  had  a  practice 
protected  from  the  seller's  competition  may  make  his  practice 
an  asset  which  his  administrator  can  sell.^^  Furthermore,  the 
buyer  purchased  the  seller's  practice,  which  means  the  practice 
which  the  seller  would  have  during  his  life.  It  would  hamper 
such  transactions  too  much  if  the  covenant  had  to  be  worded 
so  as  to  take  care  of  all  the  contingencies  under  which  the 
restriction  might  cease  to  be  of  value  to  the  buyer. 

§  14.  Covenants  which  seem  to  be  broader  than  the  seller's 
business  may  be  divisible,  so  that  the  separable  part  which  is  not 
broader  than  the  seller's  business  may  be  enforced.^*^ 

§  15.  (4)  If  the  business  sold  is  coextensive  with  the  boun- 
daries of  the  United  States,  but  the  restriction  is  world-wide,  is 
it  valid?  It  has  been  said  that  where  the  restriction  related  to 
the  territorial  area  of  a  foreign  country,  that  fact  could  not  be 


219  (1888)  [29]  ("If  the  com- 
plainant here  wished  to  retire  from 
his  practice,  and  sell  it,  he  could 
probably  sell  it  for  more  if  he 
would  secure  the  purchaser  from 
competition  with  the  defendant  for- 
ever than  he  could  if  he  could  only 
secure  him  from  such  competition 
during  his  own  life.  So,  if  he  wished 
to  take  in  a  partner,  he  could,  for 
the  same  reason,  make  better  terms 
with  him.") 

29— Hitchcock  v.  Coker,  6  A.  & 
E.  438  (1837)   [24], 

30— Trenton  Potteries  Co.  v.  Oli- 
phant,  58  N.  J.  Eq.  507  (1899) 
[161]  (Restriction  applied  "within 
any  state  in  the  United  States  of 
America,  or  within  the  District  of 
Columbia,  except  in  the  State  of 
Nevada  and  the  Territory  of 
Arizona,"  and  was  held  applicable 
to  the  area  of  each  State  disjunc- 
tively described,  and  enforced  in  the 
State  where  the  covenantor's  busi- 
ness was  carried  on);  Smith's  Ap- 
peal, 113  Pa.  St.  579,  590  (1886) 
(restriction  **in  the  County  of  Le- 


high or  elsewhere ") ;  Thomas  v. 
Miles,  3  Oh.  St.  274  (1854)  (re- 
striction in  "said  city  or  else- 
where"); Lange  v.  Werk,  2  Oh. 
St.  519  (1853)  (restriction  in  "the 
County  of  Hamilton,  in  the  State  of 
Ohio,  or  any  other  place  in  the 
United  States."  Held  valid  as  to 
Hamilton  County) ;  Wiley  v.  Baum- 
gardner,  97  Ind.  66  (1884). 

In  Oregon  Steam  Navigation  Co. 
v.  Winsor,  87  U.  S.  64  (1873),  the 
restriction  was  held  divisible  as  to 
the  time  it  was  to  be  operative.  It 
was  enforced  during  the  time  it 
could  properly  be  operative.  Bed 
quaere  ad  hoc. 

In  Hubbard  v.  Miller,  27  Mich. 
15  (1873)  a  covenant  not  to  carry 
on  a  certain  business  was,  without 
any  express  limitation  as  to  terri- 
tory, construed  as  forbidding  the 
carrying  on  of  the  business  only  at 
the  city  where  the  business  sold  had 
been  carried  on,  and  such  territory 
round  about  as  the  business  would 
naturally  and  reasonably  be  carried 
on  in. 


14 


Ch.  1]  CONTRACTS  NOT  TO  DO  BUSINESS  [§  16 

an  argxiinent  against  the  validity  of  the  covenant.^i  This  may  be 
doubted;  for  it  is  now  apparent  that  restrictions  upon  doing 
business  in  a  foreign  country  may  have  a  very  unfortunate  effect 
upon  the  public  interest  in  the  domestic  jurisdiction —  especially 
where  the  covenantee  is  engaged  in  a  rival  business  in  the  foreign 
country  as  well  as  in  the  domestic  jurisdiction. 

Section  4 

restrictive  contracts  accompanying  the  sale  of  a  business  to 
an  existing  competitor,  where  the  restriction  is  so  par 
limited  as  to  be  valid  if  the  sale  were  not  to  a  com- 
PETITOR 

§16.  If  the  sale  be  illegal  ^^  then  the  restriction  certainly 
is.  But  if  the  sale  taken  by  itself  be  legal,  the  courts  have  made 
no  distinction,  so  far  as  the  legality  of  the  restriction  is  con- 
cerned, between  the  case  where  the  sale  is  to  be  a  competitor  and 
where  it  is  not.  Accordingly,  the  restrictive  covenant  and  the 
sale  to  a  competitor  have  been  sustained  both  where  the  title  to 
tangible  assets  used  in  the  business  passed,33  and  also  where 

31 — Nordenfelt    v.    Maxim    Nor-  They  certainly  would  not  have  re- 

denfelt  Guns  Co.   [1894]   A.  C.  535  garded  it  as  against  public  policy 

[44]      ("The     appellant     appeared  to   prevent  the  person  whose  busi- 

willing  to  concede  that  it  might  be  ness   had   been  purchased   and  was 

good  if  limited  to  the  United  King-  being  carried  on  here  from  setting 

dom;     hut    he    contended    that    it  up  or  assisting  rival  businesses  in 

ought  not  to  be  world-wide  in  its  other   countries;    and    for   my   own 

operation.     I   think   that  in  laying  part  I  see  nothing  injurious  to  the 

down  the  rule   that  a  covenant  in  public  interests  of  this  country  in 

restraint  of  trade  unlimited  in  re-  upholding  such  a  covenant.") 
gard  to  space  was  bad,  the  courts  32 — As  to  the  principles  govern- 

had  reference  only  to  this  country.  ing  the  validity  of  the  sale  see  post 

They  would,  in  my  opinion,  in  the  §§  48-92  which  deal  with  combina- 

days    when    the   rule   was    adopted,  tions. 

have  scouted  the  notion  that  if  for  33 — ^Nordenfelt    v.    Maxim    Nor- 

the  protection  of  the  vendees  of  a  denfelt  Guns  Co.,  [1894]  A.  C.  535 

business    in    this   country    it    were  [33];   Diamond  Match  Co.  v.  Boe- 

necessary    to    obtain    a    restrictive  ber,  106  N.   Y.  473    (1837)    [55]; 

covenant    embracing    foreign    coun-  United     States     Chemical     Co.     v. 

tries,  that  covenant  would  be  bad.  Provident    Chemical    Co.,    64    Fed. 

16 


§16] 


THE  COMMON  LAW 


[Ch.l 


there  were  no  such  assets,  and  the  only  way  in  which  the  busi- 
ness could  be  sold  was  for  the  seller  to  agree  not  to  carry  it  on.** 
Where  part  of  a  business  has  been  sold  to  a  competitor  by  merely 
covenanting  not  to  carry  on  the  part  specified,  the  sale  and  the 
restriction  have  been  sustained.^^ 

§17.  In  some  cases  there  were  special  elements  which  fur- 
nished arguments  in  favor  of  the  validity  of  the  sale  and  the 
restriction.  Thus  where  it  appeared  that  the  competitor  who 
sold  out  had  recently  gone  into  the  business  for  the  purpose  of 
engaging  in  a  cut-throat  competition  and  being  bought  off,  there 
was  presented  an  actual  case  of  excessive  competition,  and  the 
buyer  was  in  the  position  of  endeavoring  to  protect  his  legiti- 
mate and  established  business  from  the  seller's  unconscionable 
conduct.^^     So  where  it  appeared  that  the  seller  was  making 


946  (1894)  [98] ;  Trenton  Potteries 
Co.  V.  Oliphant,  58  N.  J.  Eq.  507 
(1899)  [161];  KeUogg  v.  Larkin, 
3  Finn.  (Wis.)  123  (1851);  Chap- 
pel  V.  Brockway,  21  Wend.  (N.  Y.) 
157  (1839);  Van  Marter  v.  Bab- 
coek,  23  Barb.  (N.  Y.)  633  (1857) ; 
Moore  &  Handley  Hardware  Co.  v. 
Towers  Hardware  Co.,  87  Ala.  206 
(1888) ;  Beard  v.  Dennis,  6  Ind. 
200  (1855) ;  California  Steam  Navi- 
gation Co.  V.  Wright,  6  Cal.  258 
(1856);  Hubbard  v.  MiUer,  27 
Mich.  15  (1873). 

But  see,  semble,  contra:  Game- 
weU  Fire-Alarm  Co.  v.  Crane,  160 
Mass.  50  (1893)  [50];  Carrol  v. 
GUes,  30  S.  C.  412  (1888). 

34— Leslie  v.  Lorillard,  110  N. 
Y.  519  (1888)  [65];  Wood  v. 
Whitehead  Bros.  Co.,  165  N.  Y.  545 
(1901)  [72];  Wickens  v.  Evans,  3 
Y.  &  J.  318  (1829)  [84];  National 
Benefit  Co.  v.  Union  Hospital  Co., 
45  Minn.  272  (1891)  [94];  Mape3 
v.  Metcalf,  10  N.  D.  601  (1901). 

35— Leslie  v.  Lorillard,  110  N. 
Y.  519  (1888)  [65];  Wickens  v. 
Evans,  3  Y.  &  J.  318  [84] ;  National 


Benefit  Co.  v.  Union  Hospital  Co., 
45  Minn.  272    (1891)    [94]. 

36 — Leslie  v.  Lorillard,  110  N. 
Y.  519  (1888)  [65];  United  States 
Chemical  Co.  v.  Provident  Chemical 
Co.,  64  Fed.  946  (1894)  [98], 
semble,  (The  court  noted  that  the 
seller  sold  only  part  of  its  tartar 
business,  so  that  it  had  been  in  a 
particularly  advantageous  position 
to  cut  prices  in  that  part  of  the 
business  sold,  while  making  a  profit 
on  the  other  part,  thus  practicing 
the  scheme  of  local  price  cutting  to 
put  the  buyer  out  of  business.  The 
court  speaks  of  the  seller  as  being 
a  dangerous  and  aggressive  rival. 
The  court  said:  "The  plaintiff 
was  making  inroads  upon  the  de- 
fendant's business,  and  greatly 
cutting  the  prices  of  its  sole  manu- 
factured product,  while  with  the 
plaintiff  this  product  was  but  a 
single  feature  of  its  manufacturing 
plant.  The  defendant  had  a  perfect 
right  to  buy  off  the  competition  of 
a  dangerous,  powerful  and  aggres- 
sive rival.     The  law  of  self-defense 


16 


Ch.  1]  CONTRACTS  NOT  TO  DO  BUSINESS  [§  18 

tartar  of  both  rock  and  bone,  and  that  both  were  of  equal  utility, 
and  the  seller  parted  with  his  bone  tartar  business  only  and  kept 
his  rock  tartar  business,  the  court  noted  that  the  public  purchas- 
ing tartar  still  had  competition  as  to  prices  between  rock  tartar 
and  bone  tartar.  ^^ 

Section  5 

restrictive   contracts   accompanying   the    combination    of 
several  business  units 

§  18.  If  the  combination  be  illegal  ^s  then  the  restriction 
certainly  is.  But  if  the  combination  taken  by  itself  be  legal,  the 
courts  appear  to  have  made  no  distinction,  so  far  as  the  validity 
of  the  restriction  is  concerned,  between  the  case  of  a  sale  and  a 
combination.39 

The  principal  question  which  arises  is  whether  the  test  of  the 
validity  of  the  restriction  is  the  extent  of  the  business  sold  or  of 
the  businesses  combined.  Is  the  restriction  void  only  if  it  is 
broader  than  the  business  sold  or  only  if  it  is  broader  than  the 
businesses  combined?  The  latter  position  has  been  sustained.^** 
The  situation  is  like  that  of  an  incoming  partner,  who  devotes 
himself  to  the  common  business  of  all  the  partners,  and  may 
properly  be  restricted  so  that  he  cannot  carry  on  the  same  busi- 
ness in  competition  with  the  partnership. 

and    protection    applies    to    one's  [the  restrictive  covenant]    was  not 

business  as  well  as  to  his  person.")  unreasonable.     The  parties  contem- 

37 — United    States    Chemical    Co.  plated  an  extensive  business,  with  a 

V.  Provident  Chemical  Co.,  64  Fed.  special  effort  to  develop  an  export 

M6   (1894)    [98].  trade.      No    limitation    of    foreign 

38 — For  the  principles  applicable  countries  could  be  made  in  advance, 

in  determining  the  validity  of  com-  for   the   company   was   to    seek   its 

binations  see  post  §§  48-92.  markets.     In  this  country  it  might 

39 — Oakdale   Mfg.   Co.   v.   Garst,  need   to   set   branches    in    different 

18  B.  I.  484   (1894)    [78];   Anchor  parts  for  the  sale  or  manufacture 

Electric  Co.  v.  Hawkes,  171  Mass.  or  exportation  of  its  products."); 

101   (1898) ;  Eobinson  v.  Suburban  Anchor  Electric  Co.  v.  Hawkes,  171 

Brick  Co.,  127  Fed.  804  (1904).  Mass.  101  (1898).    But  see  Central 

40 — Oakdale    Manufacturing    Co.  Ohio  Salt  Co.  v.  Guthrie,  35  Oh.  St. 

V.  Garst,  18  R.  I.  484  (1894)   [84]  «66   (1880)    [690]. 
("The  circumstances  show  that  it 

Kales  Sum.  E.  of  T.— 2  17 


§  19]  THE  COMMON  LAW  [Ch.  1 

Section  6 

contracts  not  to  carry  on  a  business,  given  by  one  in  the 
business  to  another  in  the  business  or  intending  to 

ENTER  IT 

§  19.  It  has  already  been  assumed  that  a  contract  to  refrain 
from  doing  business  is  void  when  the  promisor  is  already  engaged 
in  the  business  and  the  promisee  is  not  entering  the  business  and 
not  a  competitor.*^  On  the  other  hand,  some  contracts  not  to 
carry  on  a  business  are  valid  when  they  are  secured  to  enable  the 
promisee  to  enter  the  business  on  more  advantageous  terms.  A 
common  case  of  this  sort  is  where  a  professional  man,  having  an 
established  practice,  covenants  with  one  intending  to  practice  in 
the  same  place  that  he  will  not  longer  carry  on  his  profession 
there.  Here  the  only  sale  of  the  covenantor's  business  is  con- 
tained in  the  restrictive  covenant  not  to  carry  it  on.  Its  valid- 
ity, however,  is  beyond  question.  Suppose,  however,  that  the 
promisee  and  promisor  are  already  in  the  business  and  competing, 
is  the  covenant  by  one  to  the  other  to  cease  business  valid  ? 

§20.  Where  the  business  is  carried  on  principally  with  a 
plant  and  property  which  cannot  readily  be  converted  to  any  other 
use  and  will  in  all  probability  lie  entirely  idle  during  a  period 
provided  by  the  covenant,  the  restriction  is  regularly  held  to  be 
illegal.*  2  The  moment,  however,  the  restrictive  covenant  is  to  take 
a  steamboat  off  a  certain  run  (which  does  not  in  the  least  involve 
keeping  it  idle  but  only  transferring  it  to  another  service)  it  has 

41 — Ante  §1.  ment,   was   sold).      See   also   Oliver 

42— Tuscaloosa   Ice   Mfg.    Co.    v.  v.    Gilmore,    52    Fed.    562    (1892) 

Williams,     127     Ala.     110     (1899)  (Here   it   made   no    difference   that 

[176];    demons    v.    Meadows,    123  the  promisor  had  given  a  lease  to 

Ky.  178  (1906)    [185];   (There  was  the   promisee   for   the  term  of   the 

in  these  two  cases  the  added  fact  restriction). 

that  a  demand  existed  for  the  full  In  Lufkin   Eule   Co.   v.   Fringeli, 

product  of  the  plants  shut  down);  57   Oh.    St.   596    (1898)    it   is  sug- 

Westem      Woodenware      Assn.      v.  gested  that  even  a  sale  with  a  re- 

Starkey,  84  Mich.  76  (1890)    [189]  striction   on  the  seller  may  be  in- 

(Here  it   made   no   difference   that  valid  where  it  is  in  reality  an  at- 

some   of  the  property  used   in   the  tempt   to   purchase  another   out  of 

business,   such   as   tools  and   equip-  business.     Sed  quaere  ad  hoc. 

18 


Ch,  1]  CONTRACTS   NOT   TO  DO  BUSINESS  [§  22 

been  sustained.^ 3  Qq  where  competitors  agreed  to  cease  com- 
peting by  dividing  the  territory  where  their  selling  force  oper- 
ated and  reciprocally  covenanting  not  to  do  business  in  the  speci- 
fied territory  of  each  other,  the  covenants  have  been  sustained.^* 
So  where  the  business  was  conducted  without  any  plant  at  all, 
the  promise  to  cease  business  and  turn  over  all  orders  to  the  com- 
peting promisee  was  held  to  be  valid.'*^ 

§  21.  In  looking  over  these  results  one  is  forced  to  the  conclu- 
sion that  the  mere  covenant  with  the  competitor  not  to  carry  on 
a  given  business  is  specially  objectionable  where  it  involves  the 
shutting  down  and  standing  idle  of  a  valuable  plant,  rendering 
the  property  useless  for  the  time  being.  A  contract  operating  in 
this  way  presents  a  distinctive  feature  which  must  be  considered 
in  balancing  the  considerations  for  and  against  its  validity.  This 
distinctive  feature  is  decisive  against  the  legality  of  the  restric- 
tion even  though  the  latter  be  regarded  as  a  method  of  selling 
the  business  of  the  covenantor. 

§22.  It  may  be  urged  that  the  covenantee  could  have  pur- 
chased the  property,  and  then  shut  up  the  plant  and  yet  the 
restriction  by  the  seller  must  have  been  held  valid.  The  answer 
to  this  is  that  the  actual  purchase  of  the  plant  and  property 
would  in  most  cases  be  a  guaranty  that  the  plant  would  not  be 
shut  down  unless  there  had  in  fact  been  excessive  competition — 
in  which  case  the  shutting  down  would  be  justified.    Furthermore, 

43 — Leslie  v.  Lorillard,  110  N.  Y.  the  covenantor  was  also  engaged  in 
519  (1888)  [65]  (In  this  case  raising  peppermint  roots,  there  was 
there  were  the  additional  facts  in  no  objection  to  a  division  of  the 
support  of  the  covenant  that  com-  business,  so  that  the  covenantor,  as 
petition  was  excessive  and  was  part  of  the  sale  of  his  roots  cove- 
entered  into  by  the  covenantor — a  nanted  not  to  do  any  manufacturing 
newcomer  in  the  business — for  the  for  a  period  of  time:  Van  Marter 
purpose  of  compelling  the  promisee  v.  Babcock,  23  Barb.  (N.  Y.)  633 
— the  established  line — to  buy  him  (1857). 
off).  45 — ^Wood     V.     Whitehead    Bros. 

44— Wickens  v.  Evans,  3  Y.  &  J.  Co.,    165   N.    Y.   545    (1901)    [72]. 

318   (1829)    [84] ;   National  Benefit  In  Mapes  v.  Metcalf,  10  N.  D.  601 

Co.  V.  Union  Hospital  Co.,  45  Minn.  (1901)   where  the  promisor  was  a 

272   (1891)    [94].  printer   and   using   a   plant  in   his 

Similarly,    where   the   covenantor  business,  but  where  the  plant  was 

and  covenantee  each  engaged  in  the  not  sold,  the  restriction  was,  never- 

manufaeture  of  peppermint  oil  and  theless,  eustained. 

19 


§22] 


THE   COMMON  LAW 


[Ch.l 


a  plant  which  is  simply  shut  down  for  a  specified  number  of 
years  must  (if  the  contract  be  valid)  remain  shut  no  matter  what 
the  business  conditions  may  be.  On  the  other  hand,  a  plant  and 
property  which  are  purchased  outright  and  shut  down  may  and 
undoubtedly  would  be  opened  by  the  owner  as  soon  as  business 
conditions  warranted  that  step.  These  considerations  are  suffi- 
cient to  justify  the  courts  in  making  a  distinction  between  the 
actual  sale  of  the  plant  and  the  shutting  down  of  the  plant  with- 
out such  sale.'*^ 


46 — In  Stines  v.  Dorman,  25  Oh. 
St.  580  (1874),  D  purchased  of  B 
a  hotel  property.  D  also  sold  to 
B  a  hotel  property  and  B  cove- 
nanted not  to  use  the  premises  so 
purchased  for  hotel  purposes  ■while 
the  property  which  T>  purchased 
from  B  was  so  used.  The  restric- 
tion was  held  valid.  Suppose,  how- 
ever, it  had  appeai-ed  that  this  was 
a  mere  subterfuge  to  secure  in  effect 


a  covenant  by  B  to  shut  down  his 
hotel  property  and  go  out  of  the 
hotel  business  while  still  retaining 
a  property  useful  for  hotel  pur- 
poses? Perhaps  the  restriction 
might  still  have  been  sustained  be- 
cause it  was  probable  that  under  it 
B's  property  would  not  remain  en- 
tirely useless  but  would  be  put  to 
some  other  useful  purpose. 


20 


CHAPTER  II 

CONTRACTS  ACCOMPANYING  THE  SALE  OF  PROPERTY 
RESERVING  THE  SELLER'S  BUSINESS 

§23.  In  the  preceding  chapter  the  principal  consideration 
which  supported  a  covenant,  operating  in  some  degree  to  restrain 
trade  and  to  produce  monopoly,  was  that  in  favor  of  the  free 
alienation  of  a  business  on  the  best  terms  possible.  There  are 
other  considerations  just  as  potent  to  justify  similar  restric- 
tions. For  instance,  the  person  carrying  on  a  business  upon  land 
is  entitled  to  the  same  freedom  of  action  in  selling  the  land  and 
retaining  his  business  that  he  has  to  sell  the  business  with  or  with- 
out the  land.  Unless  the  seller  who  desires  to  sell  his  land  and 
retain  his  business  can  exact  from  the  buyer  a  covenant  not  to 
use  the  land  sold  to  carry  on  the  business  of  the  seller,  the  seller 
must  keep  his  property  or  run  the  risk  in  selling  it  that  the  pur- 
chaser will  in  fact  acquire  some  of  the  business  which  the  seller 
did  not  intend  to  part  with  and  was  not  obliged  to  part  with. 
Where,  therefore,  the  seller  who  carried  on  a  business  of  selling 
sand  from  his  premises  sold  part  of  the  land  with  a  covenant 
that  the  purchaser  should  not  sell  any  sand  from  the  land  pur- 
chased, the  covenant  was  valid.^  The  restriction  was  not  broader 
than  the  protection  of  the  seller  required. 

§  24.  If  it  be  urged  that  the  covenant  was  for  an  indefinite 
period  and  could  be  enforced  in  equity  against  all  purchasers 
of  the  land  and  long  after  the  seller  had  exhausted  all  the  sand 
from  his  land,  or  gone  out  of  business,  the  answer  is  that  such 
changed  conditions  would  cause  a  court  to  refuse  specific  per- 
formance and  the  damages  would  be  nominal. 

§25.  In  Norcross  v.  James  ^  the  injunction  against  the 
grantee  of  the  buyer  with  notice  was  refused  because  the  court 
declined  to  give  specific  performance  against  the  grantee  of  the 

1— Hodge   V.    Sloan,    107    N.    Y.  2—140  Mass.  188  (1885). 

244  (1887)   [215]. 

21 


§  25]  THE  COMMON  LAW  [Ch.  2 

buyer  unless  the  covenant  were  such  that  the  benefit  of  it  would 
run  at  common  law.  The  rule  adopted  as  to  the  running  of  the 
benefit  at  common  law  was  that,  to  run,  the  covenant  must  be  one 
to  do,  or  refrain  from  doing,  something  'physically  on  the  cove- 
nantor's own  land  for  the  physical  benefit  of  related  land  of  the 
covenantee.  Hodge  v.  Sloan  only  differs  from  Norcross  v.  James 
in  holding  that  equity  will  give  specific  performance  against  the 
grantee  of  the  buyer  with  notice  when  the  covenant  is  to  refrain 
from  doing  something  physically  on  the  covenantor's  land  for  the 
financial  (as  distinguished  from  physical)  benefit  of  the  related 
land  of  the  covenantee. 


22 


CHAPTER  III 
EXCLUSIVE  CONTRACTS  OF  SALE  AND  PURCHASE 

§  26.  Exclusive  contracts  of  sale  and  purchase  between  busi- 
ness units  are  in  reality  a  method  of  combination.  If  A  agrees 
to  sell  and  B  to  buy  A's  product  exclusively  in  a  given  territory, 
A  and  B  have  really  combined  for  the  purpose  of  doing  business 
in  A's  product  in  that  territory.  Competition  between  B  and 
others  in  dealing  with  A 's  commodity  in  the  particular  territory 
is  eliminated  just  as  if  B  had  become  a  part  of  A's  business  by 
merger  and  organization  as  a  selling  department  or  agent.  The 
legality  of  such  exclusive  arrangements  really  depend  upon  the 
principles  which  govern  the  validity  of  combinations  by  merger  or 
purchase.  These  are  set  out  hereafter.^  But  for  the  sake  of  deal- 
ing with  exclusive  contracts  by  themselves,  the  application  of 
those  principles  will  here  be  made  to  such  contracts. 

§  27.  If  A  and  B  are  not  competitors,  and  the  exclusive  con- 
tract between  them  does  not  result  in  a  combination  which  occu- 
pies a  preponderant  position  in  the  business  it  is  legal.  Such  is 
the  case  where  a  producer  or  wholesaler  who  is  merely  one  unit 
among  many  competitors  makes  exclusive  selling  or  purchasing 
arrangements  with  territorial  distributors  or  retailers  of  his 
product.2  Even  where  B  was  a  railroad  and  agreed  to  run  the 
sleeping  cars  of  a  single  company  exclusively  for  15  years,  the 
contract  was  valid.^  Looked  at  as  an  isolated  transaction,  the 
railroad  was  a  legal  organization  and  no  consideration  overcame 
the  public  interest  in  its  freedom  to  contract  for  facilities.  The 
fact  that  the  exclusive  contract  is  made  with  a  competitor  should 
be  no  more  offensive  than  any  other  union  of  competitors.    If  the 

1— Post  §§  48-92.  3— Chicago,  St.  Louis  &  N.  O.  R. 

2 — Newell  v.  MeyendorfP,  9  Mont.  Co.   v.   Pullman   Southern   Car   Co., 

254  (1890)    [221].     See  also  Houck  139  U.  S.  79  (1891)    [237]. 
&    Co.    V.    Wright,    77    Miss.    476 
(1899) ;  Walsh  v.  Dwight,  40  N.  T. 
App.  Div.  513   (1899). 

23 


§  28]  THE  COMMON  LAW  [Ch.  3 

combination  of  competitors  does  not  result  in  a  unit  occupying  a 
preponderant  position  in  the  business  it  is  valid.* 

§28.  So  where  there  are  mutual  exclusive  contracts  of  sale 
and  purchase  entered  into  by  parties  who  are  combining  different 
resources — i.  e.,  one  possessing  mines  for  the  raw  material, 
another  skill  and  labor,  and  a  third  the  manufacturing  plant 
using  the  raw  material — ^the  contracts  are  valid  though  they 
eliminate  a  possible  competition  between  the  units  so  combining 
and  to  that  extent,  at  least,  tend  toward  monopoly.  The  con- 
siderations in  favor  of  permitting  a  combination  of  the  resources 
of  several  in  a  common  enterprise  which  is  necessary  to  the 
fostering  and  developing  of  trade  and  industry  overcome  such 
objections  as  inhere  in  the  elimination  of  competition  and  ten- 
dency toward  monopoly  in  the  case  put,  provided  always  that 
there  is  no  exclusion  of  others  from  the  business  by  a  unit  hold- 
ing a  preponderant  position.** 

§  29.  If,  however,  the  exclusive  contract  of  sale  and  purchase 
is  part  of  a  scheme  of  so  many  similar  contracts  that  a  combina- 
tion is  effected  occupying  a  preponderant  position  in  the  entire 
business,  there  is  at  least  a  prima  facie  inference  of  an  intent  to 
monopolize  by  excluding  others  from  the  business  and  the  con- 
tract and  combination  are  illegal.® 

§  30.  Suppose  now  that  a  local  telephone  company,  depend- 
ing upon  special  franchises  for  its  operation,  makes  an  exclusive 
connecting  arrangement  with  a  long  distance  company  which 
also  operates  under  special  franchises.  This  is  a  combination 
between  the  local  and  long  distance  companies.  Its  tendency 
is  to  keep  out  of  the  field  any  other  long  distance  company 
because  such  a  company  cannot  secure  the  local  connection  which 
it  needs.  Its  tendency  is  also  to  keep  out  of  the  field  any  other 
local  company  operating  in  the  same  place  because  such  local 

4— Pos*  §§53-59.     As  applied  to  6— Continental  Wall  Paper  Co.  v. 

exclusive  contracts  to  sell  a  product  Voight  &  Sons  Co.,  212  U.  S.  227 

to  a  competitor  see  Van  Marter  v.  (1909)   [799,  1211];  Arnot  v.  Pitt- 

Babcock,    23    Barb.    (N.    Y.)    633  ston  &  Elmira  Coal  Co.,  68  N.  Y. 

(1857).  558  (1877)  [224].    See    post  §49. 

5 — Southern  Fire  Brick  &  Clay 
Co.  V.  Garden  City  Sand  Co.,  223 
111.  616  (1906)   [230]. 

24 


C1l3] 


ESXCLUSIVE  CONTRACTS 


[§30 


company  cannot  secure  the  long  distance  facilities  which  it  needs. 
These  tendencies,  which  in  an  ordinary  trading  and  manufac- 
turing business,  free  to  aU  to  enter,  would  be  too  slight  to  out- 
weigh the  desirability  of  maintaining  the  freedom  to  contract, 
are  decisive  against  the  validity  of  the  contract  between  the 
telephone  companies^  The  same  reasoning  makes  exclusive  con- 
tracts between  the  local  telephone  company  and  its  subscribers 
illegal.  The  local  telephone  business  being  necessarily  unfree 
to  the  public  to  enter,  any  exclusive  contract  with  a  subscriber 
which  would  tend  to  keep  out  of  the  telephone  business  any  other 
company  admitted  to  do  business  by  the  public  authorities  would 
be  an  illegal  attempt  at  monopoly.^ 

The  difference  between  these  cases  and  the  Pullman  Palace 
Car  case  ^  is  this :  In  the  Pullman  case  the  business  of  making 
sleeping  cars  was  free  to  others  to  enter  and  the  single  contract 
in  question  did  not  make  it  appreciably  less  so,  nor  did  it  tend 
to  exclude  from  the  field  other  railroad  companies  to  which  the 
public  authorities  might  choose  to  give  a  franchise  to  build  and 
operate  a  railroad. 


7 — ^Union  Trust  &  Savings  Bank 
V.  Kinloch  Long  Distance  Tele- 
phone Co.,  258  111.  202  (1913) 
[242] ;  United  States  Telephone  Co. 
V.  Central  Union  Co.,  171  Fed.  130 
(1909),  202  Fed.  66  (1913).  Of 
course,  the  exclusive  contract  is  also 
illegal,  because  it  prevents  the  local 
company  from  performing  its  duty 


to  the  public  by  connecting  with 
other  companies  and  giving  the 
service  to  the  public  which  such 
connections  would  have  enabled  it 
to  do. 

8 — Central  New  York  Telephone 
&  Telegraph  Co.  v.  Averill,  199  N. 
Y.  128   (1910)    [249]. 

9— Ante  §27. 


25 


CHAPTER  IV 

CONTRACTS  (1)  TO  KEEP  UP  THE  PRICE  ON  RESALE 

AND  (2)  TO  BUY  OR  USE  OTHER  ARTICLES  IN 

CONNECTION  WITH  THOSE  SOLD 

Section  1 

contracts  to  keep  up  the  price  on  resale 

§31.  Suppose  a  manufacturer,  whose  goods  are  neither 
patented  nor  subject  to  any  copyright  and  are  in  competition 
with  similar  goods  of  other  manufacturers  and  not  the  subject 
of  any  public  necessity,  and  who  does  not  occupy  any  prepon- 
derant position  in  the  business  in  which  he  is  thus  engaged,  sells 
his  commodity  to  retail  distributors  with  the  covenant  by  them 
not  to  sell,  and  that  the  goods  are  not  to  be  sold  by  anyone,  for 
less  than  certain  prices.  If  such  a  contract  is  valid,  is  it  enforce- 
able between  the  parties  by  injunction?  If  so,  is  it  enforceable 
specifically  in  equity  against  third  parties  who  take  with  notice 
of  the  restrictive  covenant?  These  are  important  questions, 
but  they  are  subordinate  to  the  settlement  of  the  validity  of  the 
contract  as  between  the  parties. 

§  32.  Before  the  decision  in  the  United  States  Supreme  Court 
of  the  Dr.  Miles  Medical  Co.  case,^  it  had  been  held  in  England 
and  in  several  states  of  the  Union — that  is  to  say,  in  a  number 
of  common  law  jurisdictions  where  the  question  arose — ^that  such 
a  contract  was  valid  as  between  the  parties  so  that  damages  for 
the  breach  might  be  recovered  ^  or  an  injunction  against  the 
breach  obtained.^     In  one  case,  at  least,  the  injunction  was 

1 — ^Dr.  Miles  Medical  Co.  v.  Park  3 — Grogan    v.    Chaffee,    156    Cal. 

&  Sons  Co.,  220  U.  S.  373    (1911)  611  (1909)  [251];  Garst  v.  Charles, 

[838].  187    Mass.    144    (1905).      See    also 

2 — Elliman  Sons  &  Co.  v.  Carring-  Clark  v.  Frank,   17  Mo.  App.   602 

ton  &  Son,  L.  R.  [1901]  2  Ch.  275;  (1885);     New     York     Ice    Co.     v. 

Garst    V.     Harris,     177     Mass.     72  Parker,  21  How.  Pr.   (N.  Y.)   302 

(1900).  (1861). 

26 


Ch.  4]  CONTRACTS  TO  FIX  RESALE  PRICE  [§33 

allowed  against  third  parties  who  had  notice  of  the  contract  and 
who  had  procured  an  original  party  to  the  contract  to  purchase 
and  resell  to  the  defendant  so  that  the  defendant  might  sell  for 
a  lower  price  than  that  specified.*  Recently,  however,  in  the 
Dr.  Miles  Medical  case  ^  the  United  States  Supreme  Court  has 
held  that  no  injunction  should  issue  against  the  third  party  who 
took  the  commodity  with  notice  of  the  restrictive  agreement.  It 
made  no  difference  that  the  bill  alleged  and  the  demurrer 
admitted  that  the  defendant  sought  to  sell  the  complainant's 
goods  to  others  who  might  sell  them  at  cut  rates  and  "thus 
attract  and  secure  custom  and  patronage  for  other  merchandise, 
and  not  for  the  purpose  of  making  or  receiving  a  direct  money 
profit,"  and  for  this  purpose  procured  the  commodities  from 
the  complainant's  "wholesale  and  retail  agents"  by  "false  and 
fraudulent  representations  and  statements,  and  by  surreptitious 
and  dishonest  methods,  and  by  persuading  and  inducing  directly 
and  indirectly"  a  violation  of  their  contract.  It  should  also  be 
noted  that  the  decision  of  the  United  States  Supreme  Court  did 
not  go  on  the  ground  that  equity  would  not  give  specific  per- 
formance of  a  restrictive  covenant  relating  to  the  disposal  of 
personal  property,  or  that  specific  performance  in  general  could 
not  be  given  against  a  third  party  who  took  property  with  notice 
of  the  restriction.  The  court  went  solely  on  the  ground  that  the 
agreement  was  illegal  between  the  parties  and  not  enforcible 
in  any  kind  of  an  action. 

This  sharp  division  of  opinion  between  the  United  States 
Supreme  Court  and  the  courts  of  other  jurisdictions  justifies 
an  examination  of  the  merits  of  the  opposing  contentions. 

§  33.  The  United  States  Supreme  Court  first  makes  the  point 
that  the  seller  cannot  control  the  passing  of  title  to  future  pur- 
chasers by  requiring  that  title  shall  pass  only  at  certain  prices. 
Such  an  attempt,  if  successful,  would,  it  insists,  impose  an  illegal 
restraint  or  forfeiture  upon  alienation.  If  this  be  a  sound  prin- 
ciple and  applicable,  it  would  be  no  answer  to  it  that  there  is 
no  restriction  upon  the  passing  of  title,  but  only  a  contract  as 
to  the  price  which  the  purchaser  may  ask  upon  a  resale.     If 

4— Garst  v.  Charles,  187  Mass.  144  &  Sons  Co.,  220  IT.  S.  373  (1911) 
(1905).  [838]. 

5 — ^Dr.  Miles  Medical  Co.  v.  Park 

27 


§  33]  THE  COMMON  LAW  [Ch.  4 

such  an  agreement  is  enforced  specifically  in  equity  between  the 
parties  and  against  third  parties  with  notice,  there  is  produced 
the  effect  of  a  restraint  on  the  alienation  of  the  commodity  itself. 
If  an  attempt  to  do  the  latter  is  illegal,  certainly  equity  would 
not  permit  the  former.  If  damages  may  be  collected  for  the 
breach  of  the  attempted  contract  in  question  there  is,  to  a  less 
degree  only,  a  deterrent  to  alienation.  Ignoring,  however,  the 
decisive  effect  of  the  rule  forbidding  restraints  on  alienation,  the 
Supreme  Court  considers  the  validity  of  the  arrangement  merely 
as  an  agreement  between  the  parties.  This  agreement  it  finds  is 
illegal  because  it  is  one  of  a  scheme  of  contracts  with  many  retail- 
ers which  operates  as  an  arrangement  between  all  the  retailers 
to  eliminate  competition  between  themselves  and  to  fix  the  price 
at  which  they  will  sell  a  given  commodity.  This,  it  is  said,  is  as 
objectionable  as  if  the  dealers  themselves  had  combined  and 
agreed  upon  prices  generally, 

§  34.  All  this  is  a  faithful  adherence  to  the  outward  form  of 
certain  rules  without,  it  is  believed,  any  regard  for  their  actual 
meaning. 

§  35.  We  have,  for  instance,  a  faithful  adherence  to  the  form 
of  the  rule  that  restraints  and  forfeitures  upon  alienation  of 
absolute  interests  in  personal  property  are  illegal.  It  is  entirely 
overlooked  that  this  expresses  a  rule  of  public  policy  and  is 
properly  qualified  whenever  the  courts  have  to  deal  with  a  dis- 
tinctive transaction  which  does  not  infringe  the  policy  which 
the  rule  carries  out.  Thus  one  may  provide  for  forfeiture  upon 
alienation  to  a  particular  person  or  group  of  persons.^  Some 
cases  have  even  gone  so  far  as  to  permit  a  forfeiture  on  alienation 
to  any  one  except  a  certain  group  of  persons.*^  The  question 
always  is:  has  the  restraint  or  forfeiture  on  alienation  been 
restricted  in  so  distinctive  a  way  that  the  public  policy  behind 
the  rule  has  not  been  infringed.  Perhaps  it  would  be  better 
to  say  that,  upon  a  balance  of  all  considerations,  the  freedom  of 
action  of  the  party  restricting  alienation  to  some  extent  out- 
weighed the  dangers  to  the  public  from  the  limitation  on  aliena- 

6— Littleton  361.  v.  Attwater,  18  Beav.  330    (1853). 

7 — Doe   V.   Pearson,   6   East   173  And  see  In  re  Kosher,  26  Ch.  Div. 

(1805);    In  re   Macleay,   L.   E.   20  801  (1884). 
Eq.  186   (1875).     Contra,  Attwater 

28 


Ch.  4]  CONTRACTS  TO  FIX  RESALE  PRICE  [§36 

tion.  The  moment  the  case  in  question  is  approached  in  this 
way,  what  do  we  find?  The  manufacturer  is  in  the  business  of 
selling  products  to  the  public.  He  cannot  prosper  unless  sales 
are  made.  His  goods  are  in  competition  with  goods  of  other 
manufacturers  who  are  as  strong  commercially  as  he  is.  These 
are  distinctive  features  which  the  courts  can  lay  hold  of.  They 
automatically  require  a  price  at  which  the  manufacturer's  goods 
will  sell.  This  means  that  any  restraint  or  forfeiture  on  aliena- 
tion is  reduced  to  the  minimum.  It  means  that  there  is  a  restraint 
or  forfeiture  on  alienation  to  the  class  of  people  who  will  buy 
only  at  the  reduced  price  which  dealers  not  subject  to  the  con- 
tract might  make.  The  distinctive  feature  of  the  transaction 
makes  it  clear  that  this  will  be  a  small  group  in  comparison  with 
those  who  are  ready  to  buy  at  the  established  price.  Properly 
analyzed,  the  restraint  or  forfeiture  on  alienation,  whether  it 
proceeds  from  an  expressed  forfeiture  of  the  title  on  alienation, 
or  a  restraint  on  its  alienation  below  a  certain  price,  or  from 
the  specific  enforcement  of  the  contract  in  equity,  is  reduced 
to  such  a  point  as  to  exclude  it  from  the  infringement  of  any 
public  policy  against  general  provisions  of  forfeiture  or  restraints 
on  alienation  of  personal  property.  "When  we  add  the  special 
grounds  for  freedom  of  economic  action  in  transactions  having 
the  distinctive  features  of  this  one,  the  validity  of  the  arrange- 
ment in  question  should  not  be  in  doubt. 

§36.  The  manufacturer  of  a  "specialty"  or  of  "branded 
goods ' '  succeeds  commercially  by  doing  a  large  part  of  the  selling 
himself.  He  packs  his  own  goods;  he  standardizes  them;  he 
advertises  them  in  competition  with  similar  goods  of  other 
equally  strong  manufacturers.  The  only  thing  he  does  not  do 
is  to  distribute  them.  He  cannot  succeed  if  he  attempts  to  do 
that.  These  goods  are  of  the  sort  that  the  purchaser  comes  to 
know  and  to  call  for  wherever  he  is  and  he  pays  for  them,  very 
largely,  over  the  counter  of  the  distributor.  The  manufacturer, 
therefore,  needs  a  large  number  of  convenient  distributing  points. 
He  needs  all  the  groceries  in  the  United  States,  or  all  the  phar- 
macies. These  are  not  really  purchasers  of  goods  for  sale.  They 
are  distributors  of  goods  for  the  manufacturer — the  manufac- 
turer having,  by  his  advertising,  standardizing,  and  packing, 
done  a  large  part  of  the  business  of  selling.    Now  comes  the 

29 


§36]  THE   COMMON  LAW  [Ch.  4 

prime  difficulty  with  this  system  of  selling.  Grocers  in  small 
groups  all  over  the  United  States  compete  with  each  other.  So 
do  the  owners  of  pharmacies  in  small  groups.  The  smaller 
retailer  is  in  competition  with  the  better  organized  department 
store.  The  moment  that  the  retailers  are  permitted  to  compete 
with  each  other  as  to  the  price  of  "specialty"  or  "branded" 
goods,  the  manufacturer's  distributing  plan,  which  is  vital  to 
his  success,  is  impaired.  If  his  goods  are  very  popular,  some 
retailer  or  department  store  will  advertise  a  cut  rate  below 
cost  in  order  to  attract  customers  to  whom  other  goods  will  be 
sold  at  a  compensatory  profit.  Such  a  course  disrupts  the  manu- 
facturer's distributing  units.  Others  who  cannot  or  will  not 
meet  the  cut  cease  to  be  interested  in  carrying  or  pushing  the 
manufacturer's  goods.  This  arrangement  tends  to  exist  every- 
where, because  some  unit  in  each  locality  will  always  be  in  a  state 
of  cutting  prices  on  a  popular  branded  article  in  order  to  stimu- 
late general  trade  for  the  unit. 

§  37.  This  is  the  condition  which  the  manufacturer  seeks  to 
meet  by  his  contract  to  stabilize  prices  upon  resale.  That  such 
contracts  are  necessary  to  this  method  of  doing  business  is  plain. 
That  the  method  of  doing  business  itself  has  some  advantages  to 
the  public  is  equally  clear.  It  centralizes  advertising  and  there- 
fore saves  greatly  on  this  item.  It  centralizes  the  labor  of  pack- 
ing, which  saves  also  on  the  cost  of  the  article.  It  standardizes 
articles  so  that  the  time  spent  at  the  counter  in  determining 
what  to  buy  is  cut  down;  and  in  this  way  the  selling  cost  is 
reduced.  It  is  efficient  in  service  because  of  the  large  number 
of  convenient  distributing  points  which  are  used.  To  tell  the 
manufacturer  that  he  cannot  work  out  the  marketing  end  of 
his  business  by  the  method  in  question  is  to  tell  him  that  he 
cannot  distribute  most  efficiently  through  a  large  number  of 
retailers  without  suffering  the  consequences  of  their  tendency 
to  compete  with  each  other.  This  is  to  condemn  a  new  method 
of  conducting  business  to  inefficiency  and  waste,  or  to  disrupt 
it  entirely.  Such  a  course  neglects  the  fact  that  while  title  tech- 
nically passes  to  the  retailer,  the  manufacturer  is  in  reality,  to 
a  considerable  degree,  the  seller  by  reason  of  his  having  done  a 
large  and  expensive  part  of  the  work  of  selling  to  the  ultimate 
consumer.    It  overlooks  the  fact  that  he  is,  in  a  sense,  a  partner 

30 


Ch.  4]  CONTRACTS  TO  FIX  RESALE  PRICE  [§39 

with  the  retailer  until  the  goods  have  come  to  the  ultimate  con- 
sumer, and  as  such  is  entitled  to  control  the  price  in  the  interest 
of  his  method  of  distribution. 

§38.  Economists  and  students  of  business  may  discuss 
whether  the  method  of  manufacturing  and  selling  ''specialty" 
and  "branded"  goods  coupled  with  contracts  on  the  part  of 
the  retailer  to  keep  up  the  price  on  resale  is  a  valuable  or  the 
wisest  method  or  not.  There  may  be  differences  of  opinion  about 
the  matter,  "Where,  however,  there  are  opposing  advantages  and 
disadvantages  in  the  way  the  business  is  conducted  and  where  it 
remains  a  matter  of  opinion  or  speculation  whether  good  or  ill 
to  the  public  preponderates,  the  fundamental  social  interest  in 
the  freedom  of  economic  action  requires  the  courts  to  refrain 
from  throwing  a  monkey  wrench  into  the  commercial  effort  in 
question. 

§39.  When  the  court  declares  the  contract  to  keep  up  the 
price  on  resale  is  invalid  because  it  is  the  same  as  a  contract 
or  combination  between  all  the  retailers  to  eliminate  competition 
between  themselves  and  fix  prices,  we  again  have  a  faithful 
adherence  to  the  form  of  a  legal  rule  without  the  slightest  regard 
for  its  substance  or  the  reasons  which  determine  its  limitations. 
When  retailers  who  are  competing  combine  and  eliminate  com- 
petition between  them  by  agreements  as  to  prices,  we  have  the 
recorded  assumption  that  in  their  sphere  of  business,  at  least, 
they  have  a  preponderant  or  monopolistic  position,  and  that  they 
will  keep  it  by  using  their  power  to  exclude  others  by  unfair 
and  illegal  methods  of  competition.^  The  agreement  as  to  price 
is  the  admission  of  facts  which  make  an  illegal  attempt  at  mo- 
nopoly. But  where  the  manufacturer  sells  his  "specialty"  or 
* '  branded ' '  goods  to  distributors  who  agree  to  keep  up  the  price 
on  resale,  we  have  no  such  admission,  or,  at  least,  the  inference 
of  any  such  admission  is  rebutted.  The  manufacturer  has  no 
preponderant  position  in  the  business.  He  is  in  competition  with 
many  other  manufacturers  who  sell  goods  of  the  same  sort.  Nor 
is  the  position  of  the  manufacturer  preponderant  because  he 
deals  through  a  large  number  of  retailers  who  agree  to  keep  up 
the  price  on  resale.  These  retailers  may  handle  the  goods  of 
the  competitors  of  the  manufacturer  on  exactly  the  same  terms, 

8— Post  §  70. 

31 


§39]  THE   COMMON  LAW  [Cll.  4 

or  on  terms  more  favorable  to  the  buyers.  The  manufacturer, 
by  reason  of  having  taken  care  of  the  advertising,  standardizing, 
and  packing  of  the  goods,  and  requiring  of  the  retailer  only  the 
function  of  distributing  and  receiving  payment,  is  in  substance 
a  partner  with  the  retailer  in  selling,  and  has  a  legitimate  inter- 
est in  controlling  the  price  to  prevent  the  disorganization  of  his 
distributing  system.  This  does  not  eliminate  any  competition 
between  the  manufacturer  and  other  manufacturers  who  are 
doing  the  same  sort  of  business.  There  is  no  exclusion  of  others 
from  the  manufacturing  business,  or  from  the  business  of  retail- 
ing. It  is  the  free  competition  among  the  manufacturers  which 
determines  the  price  to  the  public.  The  contract  to  keep  up  the 
price  on  resale  is  thus  reduced  to  a  device  to  preserve  the  most 
effective  distributing  organization  for  the  manufacturer,  who 
is  also  in  part,  at  least,  the  actual  seller  as  well. 

§40.  In  Bobbs-Merrill  Co.  v.  Straus,^  the  supreme  court 
held  that  the  holder  of  a  copyright  on  a  book  who  had  sold  it 
with  a  restriction  that  it  was  not  to  be  resold  for  less  than  $1.00 
could  not  have  an  injunction  against  the  violation  of  the  restric- 
tion by  a  third  party  who  had  notice  of  it.  This  ruling  seems 
to  have  proceeded  solely  upon  a  construction  of  the  copyright 
act ;  for  the  jurisdiction  of  the  court  was  founded,  not  on  diverse 
citizenship  and  the  specific  performance  of  a  restrictive  agree- 
ment, but  upon  the  protection  afforded  by  the  federal  statutes 
against  infringement  of  copyrights.  The  copyright  act  gave  the 
holder  of  the  copyright  the  **sole  right  of  vending  the  same." 
This  was  construed  to  include  no  right  whatever  to  fix  the  price 
at  which  the  copyrighted  article  might  subsequently  be  sold. 
In  Bauer  v.  O'Donnell  ^^  the  same  ruling  was  made  where  a  pat- 
ented article  was  involved.  This  also  proceeded  upon  the  con- 
struction of  the  patent  act,  which  gave  the  patentee  the  "exclu- 
sive right  to  make,  use  and  vend  the  invention  or  discovery." 
In  Straus  v.  Victor  Talking  Machine  Co.^i  an  attempt  to  retain 
title  to  the  patented  article  in  the  manufacturer  who  merely 
licensed  the  use  subject  to  a  condition  and  covenant  that  the 
article  should  not  be  resold  for  less  than  a  certain  price  was 
equally  ineffective  and  unenf orcible.   Again  an  injunction  against 

9—210  TI.  S.  339  (1908).  11—243  TJ.  S.  490  (1917). 

10—229  U.  S.  1  (1913). 

32 


Ch.  4]  CONTRACTS  TO  FORCE  USE  OF  ACCESSORIES  f§  41 

a  third  party  who  had  no  contract  relations  with  the  plaintiff, 
but  who  had  notice  of  the  restriction,  was  denied. 

Suppose  in  these  eases  the  complainant  had  abandoned  all 
reliance  upon  the  copyright  or  patent  act;  and  had  treated  the 
articles  sold  as  the  ** specialty"  product  of  his  manufacture, 
which  he  desired  to  market  by  securing  a  covenant  requiring  the 
price  to  be  kept  up  on  resale.  Suppose  the  United  States  court 
secured  jurisdiction  on  the  basis  of  diverse  citizenship ;  or  sup- 
pose the  suit  were  in  a  state  court  and  the  covenants  were  of  the 
sort  of  which  equity  gave  specific  performance  by  injunction  even 
against  third  parties  with  notice.  Would  the  result  have  been 
the  same?  Clearly  it  would  if  the  Dr.  Miles  Medical  case  were 
followed.^ 2  But  suppose  the  result  in  that  case  had  been  to 
enforce  the  restriction  by  injunction;  would  the  same  result 
have  been  reached  in  a  case  where  a  patented  or  copyrighted 
article  was  being  marketed?  Perhaps  so  and  perhaps  not.  If 
the  patent  were  a  fundamental  one  which  controlled  an  entire 
industry,  like  the  original  Bell  Telephone  patent,  a  court  of 
equity  might  say :  * '  You  have  a  monopoly  by  the  patent  or  copy- 
right act,  but  we  shall  not  aid  that  monopoly  by  giving  you 
anything  beyond  what  you  are  entitled  to  by  the  terms  of  the 
statute."  On  the  other  hand,  if  the  patent  or  copyright  gave 
no  monopoly  in  the  given  business — if  the  patented  or  copy- 
righted article  was  in  competition  with  other  articles  of  the  same 
sort — the  patented  or  copyrighted  article  should  not  be  any 
worse  off  for  that  reason.  The  same  relief,  therefore,  might  be 
given  as  in  the  case  of  "specialty"  or  "branded"  goods  which 
are  in  competition  with  others  of  the  same  sort. 

Section  2 

contracts  to  but  or  use  other  articles  in  connection  with 

those  sold 

§  41.  The  Supreme  Court  of  the  United  States  first  held,  in 
Henry  v.  A.  B.  Dick  Co.,^^  that  where  the  holder  of  a  patented 

12— Dr.     Miles    Medical    Co.    v.  13—224  U.  S.  1   (1912). 

Park  &   Sons   Co.,   220   U.   S.   373 
(1911)    [838]. 

Kales  Sum.  R.  of  T.— 3  33 


§41]  THE   COMMON  LAW  [Ch.  4 

article  licensed  its  use,  the  license  may  be  made  subject  to  the 
condition  or  stipulation  that  the  licensee  would  use  with  the  pat- 
ented article  only  unpatented  accessories,  manufactured  and 
sold  by  the  licensor,  and  that  upon  the  violation  of  this  stipula- 
tion there  would  be  an  infringement  by  the  user  of  the  patented 
article.  In  the  recent  case  of  Motion  Picture  Patents  Co.  v. 
Universal  Film  Manufacturing  Co.^*  the  decision  in  the  Dick 
case  was  overruled;  and  it  was  held  that  the  violation  of  the 
condition  or  stipulation  does  not  make  the  use  of  the  patented 
article  an  infringement.  In  both  cases  alike  the  court  appears 
to  have  been  obliged  to  deal  with  a  controversy  between  the 
parties  as  if  it  involved  the  infringement  of  a  patent ;  for  only 
on  that  ground  did  the  United  States  court  obtain  jurisdiction. 
The  Dick  case  proceeded  upon  the  theory  that  the  act  relating 
to  patents  permitted  the  holder  of  the  patent  to  license  the  use 
of  the  patented  article  upon  such  terms  as  he  saw  fit ;  and  if  the 
conditions  and  stipulations  which  he  imposed  were  not  lived  up 
to,  then  the  license  failed  and  there  was  a  user  without  license — 
that  is  to  say,  an  infringement.  This  line  of  reasoning  the 
Motion  Picture  Patents  case  denies.  It  declares  that  the  holder 
of  the  patent  may  license  the  use  of  the  article  or  not,  as  he 
pleases;  but  that  the  act  gives  him  no  authority  to  license  sub- 
ject to  the  condition  or  stipulations  in  question,  which,  if  not 
adhered  to,  will  cause  the  user  to  be  an  infringement. 

§  42.  The  Dick  case  and  the  Motion  Picture  case  have  to  do 
only  with  a  construction  of  the  patent  act ;  but  behind  the  deci- 
sion in  the  Motion  Picture  case  is  the  intimation  that  the  arrange- 
ment there  attempted  is  so  far  contrary  to  the  public  interest 
that  the  patent  act  should  not  be  construed  to  permit  it.  Sup- 
pose, then,  that  instead  of  seeking  relief  for  an  infringement, 
the  complainants  in  the  Dick  case  and  the  Motion  Picture  case 
sought  damages  for  the  breach  of  a  contract  on  the  part  of  the 
licensee  to  use  only  such  accessories  with  the  patented  article  as 
were  furnished  by  the  licensors.  Is  it  a  defense  to  such  suit 
that  the  contract  is  illegal  ? 

§43.  The  reasoning  of  the  court  in  the  Dr.  Miles  ease  has 
nothing  to  do  with  this  problem.    The  result  of  the  Dr.  Miles 

14—243  U.  S.  502  (1917). 

34 


Ch.  4]  CONTRACTS  TO  FORCE  USE  OF  ACCESSORIES  [§  45 

case  went  upon  the  illegality  of  a  restraint  or  forfeiture  on 
alienation  -whicli  was  attempted  to  be  imposed,  and  the  fact 
that  there  was  in  effect  a  combination  of  retailers  under  contract 
with  each  other  to  fix  the  price  of  a  commodity.  Neither  line  of 
reasoning  touches  the  contract  by  a  purchaser  to  use  only  certain 
accessories  with  the  article  purchased.  If  such  contracts  are 
illegal  between  the  parties,  it  must  be  on  some  ground  not  artic- 
ulated or  applied  in  the  Dr.  Miles  case.    What  can  it  be  ? 

§44.  Suppose  A  has  a  mule;  can  he  sell  him  to  B  subject 
to  the  covenant  by  B  to  curry  him  only  with  such  combs  as  are 
furnished  by  A?  Why  not?  A  does  not  have  to  sell.  Can 
he  not,  as  one  of  the  terms  of  the  selling,  require  the  purchaser 
to  buy  something  else?  What  is  the  objection  to  limiting  what 
B  must  also  buy  to  an  article  used  in  connection  with  the  chattel 
sold  ?  The  courts  have  not  been  troubled  with  such  a  case  because 
trading  in  mules  is  carried  on  in  such  a  way  as  to  make  stipula- 
tions of  the  sort  suggested  impracticable.  Such  conditions  and 
stipulations  can  only  be  exacted  where  the  article  sold  is  of 
special  and  peculiar  value — as  is  more  frequently  the  case  with 
patented  articles.  Suppose,  then,  that  A  had  a  valuable  col- 
lection of  paintings :  could  he  sell  each  article  with  the  stipula- 
tion that  the  purchaser  should  use  only  such  cleaning  and  pre- 
serving preparations  for  the  picture  as  were  sold  by  A?  Why 
not  ?  The  only  difference  in  the  cases  is  that  now  A  is  in  a  strong 
enough  position  in  the  market  to  exact  the  stipulation. 

§45.  Where  A  has  a  patented  article  the  situation  is  pre- 
cisely the  same.  The  patent  laws,  by  giving  him  the  right  to 
prevent  anyone  else  from  making  the  patented  article,  place  A 
in  the  unique  position  of  being  able  to  control  absolutely  the 
sale  of  an  article  of  special  and  peculiar  value.  He  can  sell  it 
or  not  as  he  pleases.  He  can  prevent  anyone  else  from  selling 
it.  Having  such  an  article,  A  bargains  for  the  sale  or  license 
of  it  as  he  would  any  other  piece  of  personal  property.  Is  he, 
then,  debarred  from  selling  it  on  the  best  terms  possible  ?  Is  he 
barred  from  saying,  "I  will  not  sell  unless  the  purchaser  buys 
something  else  with  it  which  is  not  patented"?  Is  he  forbidden 
to  make  a  bargain  that  unpatented  accessories  which  are  used 
in  connection  with  the  patented  article  shall  be  only  those  made 
and  sold  by  the  licensor  or  holder  of  the  patent  ?    How  can  there 

35 


§45]  THE   COMMON  LAW  [Ch.  4 

be  any  other  answers  to  these  questions  than  an  emphatic  nega- 
tive ?  When  A  has  goods  to  sell,  is  it  not  in  the  public  interest 
that  he  should  get  as  much  for  them  as  possible?  Is  he  not 
free  to  make  the  best  terras  possible?  If  he  can  require  the 
purchaser  to  buy  other  goods,  and  thus  secure  a  market  for  the 
sale  of  such  other  goods,  in  competition  with  other  parties,  is  not 
that  his  privilege  ?  Since  when  has  it  been  true  that  this  time- 
honored  method  of  trading  has  become  illegal?  If  such  terms 
are  legal,  is  it  not  equally  legal  for  the  purchaser  to  require  that 
unpatented  accessories  used  with  a  patented  article  sold  shall 
be  purchased  from  the  seller?  Are  the  rights  of  a  patentee  in 
this  respect  less  than  the  rights  of  the  owner  of  a  mule  or  a 
picture  ? 

§  46.  If  the  stipulation  in  question  makes  a  legal  and  enforce- 
able contract  at  law,  then  the  question  arises  whether  equity  will 
give  specific  performance  of  it  as  between  the  original  parties 
and  as  against  third  parties  who  take  the  patented  article  with 
notice.  This  depends  upon  whether  the  remedy  at  law  is  inade- 
quate. Suppose  it  is.  Suppose,  also,  the  fact  that  the  restrictive 
covenant  is  connected  with  the  sale  or  license  of  a  chattel  is  no 
objection  to  the  specific  enforcement  of  the  covenant  against 
third  parties  taking  the  chattel  with  notice.^^  Is  there  any 
defense  to  an  action  of  specific  performance  that  the  contract, 
while  not  illegal  in  law,  is  so  far  unfair,  unconscionable,  or 
contrary  to  the  interests  of  the  public  that  equity  should  not 
give  specific  performance?  Such  a  defense  might  exist,  espe- 
cially where  the  contract  was  supplementary  to  a  combination 
occupying  a  preponderant  position  in  the  business  and  part  of 
a  system  of  contracts  used  for  the  purpose  of  compelling  others 
to  come  into  the  combination  or  be  excluded  entirely  from  the 
business.  It  is  submitted,  however,  that  no  such  defense  to 
specific  performance  existed  in  the  Dick  case  or  the  Motion 
Picture  case. 

15 — John      Brothers      Abergarw  phy  v.  Christian  Press  Assn.,  38  N. 

Brewing    Co.     v.     Holmes,     L.     R.  Y.    App,    Div.    426    (1899) ;    New 

[1900]    1    Ch.    188;    Francisco    v.  York  Co.  v.  Hamilton  Co.  83  Hun 

Smith,    143    N.    Y.    488     (1894);  593    (1895),   28   N.   Y.    App.   Div. 

Standard  Co.  v,  Methodist  Co.,  33  411   (1898). 
N.  Y.  App.  Div.  409  (1898)  ;  Mur- 

36 


Ch.  4]  SERVITUDES  IN  CHATTELS  [§  47a 

§  47.  If,  then,  the  condition  or  stipulation  entered  into  by  the 
licensee  or  purchaser  of  a  patented  article,  that  he  will  not  use 
the  same  except  with  unpatented  accessories  furnished  by  the 
licensor  or  seller  is  not  illegal — and  if  it  is  specifically  enforce- 
able in  equity  as  between  the  parties  and  as  against  third  parties 
taking  with  notice — ^what  possible  objection  is  there  to  permitting 
a  construction  of  the  patent  act  which  would  permit  the  holder 
of  a  patent  to  make  a  license  or  sale  of  a  patented  article  subject 
to  the  condition  or  stipulation  that  it  be  used  only  in  connec- 
tion with  certain  unpatented  accessories  sold  by  the  licensor,  with 
the  result  that  upon  a  breach  of  the  stipulation  or  condition  the 
continued  user  of  the  patented  article  would  become  an  infringe- 
ment ?  Perhaps  this :  that  so  long  as  the  stipulation  is  justified 
under  the  patent  act  it  confers  an  absolute  statutory  right  in 
equity  to  obtain  specific  performance  in  the  guise  of  enjoining 
an  infringement.  On  the  other  hand,  so  long  as  it  is  merely  a 
contract  of  which  equity  gives  specific  performance  under  certain 
terms  and  conditions,  its  enforcement  by  injunction  may  be  so 
far  limited  and  controlled  that  the  results  will  not  be  uncon- 
scionable as  between  the  parties  or  contrary  to  the  interests  of 
the  public.  In  short,  a  stipulation  which  requires  specific  per- 
formance as  a  matter  of  right  might  be  regarded  as  contrary 
to  public  policy  when  a  stipulation  which  was  valid  at  law 
between  the  parties,  and  the  specific  performance  of  which  was 
in  the  control  and  discretion  of  a  court  of  equity,  might  be 
regarded  as  valid. 

Section  3 

*  conclusion 

§  47a.  What  has  been  said  by  way  of  objection  to  the  Dr. 
Miles  case  and  the  Motion  Picture  Patents  case  has  been  based 
upon  the  assumption  that  there  was  no  objection  to  a  court  of 
equity  giving  specific  performance  of  restrictions  as  to  the  use 
of  chattels  even  against  third  parties  taking  the  chattels  with 
notice  of  the  restrictions.  This  proposition,  however,  may  be 
open  to  question.  It  is  only  recently  that  courts  have  been 
called  upon  to  give  specific  performance  in  such  cases.    While 

37 


§  47a]  THE  COMMON  LAW  [Ch.  4 

the  justice  of  so  doing  in  particular  instances  may  be  apparent, 
the  courts  must  face  the  fact  that  they  are  opening  up  a  wide 
field  for  the  creation  of  what  are,  in  effect,  property  interest 
servitudes  in  chattels.  "When  the  covenantee  or  promisee  can  say 
to  the  buyer  of  a  chattel,  "You  cannot  use  what  you  have  bought 
unless  you  do  so  in  the  following  manner,"  or,  "You  cannot 
sell  it  unless  at  a  certain  price, ' '  and  if  this  position  on  the  part 
of  the  seller  can  be  enforced  specifically  against  any  holder  of 
the  chattel  taking  with  notice,  a  servitude  has  been  created  in 
the  chattel  in  favor  of  the  promisee  and  perhaps  in  favor  of 
whomever  is  running  the  business  of  the  promisee.  It  may  be 
that  the  Dr.  Miles  case  and  the  Motion  Picture  Patents  case 
both  indicate  a  reaction  against  permitting  the  specific  perform- 
ance of  restrictions  as  to  chattels  against  third  parties  with 
notice.  Perhaps  the  undesirable  features  of  having  vast  num- 
bers of  chattels  in  commerce  subject  to  all  manner  of  property 
servitudes  has  been  borne  in  upon  the  Supreme  Court  of  the 
United  States.  Perhaps  a  general  dislike  for  such  servitudes 
may  have  been  translated  by  the  court  into  what  appears  to  the 
casual  reader  of  the  opinions  to  be  a  condemnation  of  the  particu- 
lar restrictions  involved. 

§  47b.  The  following  discriminations  are  suggested : 

1.  Stipulations  and  conditions  requiring  the  buyer  of  a  chattel 
to  keep  up  the  price  on  resale,  or  to  buy  or  use  other  articles 
in  connection  with  those  sold,  are  valid  between  the  parties  and 
may  be  enforced  in  suits  at  law  for  damages. 

2.  When  the  articles  sold  are  patented  or  copyrighted,  the 
license  to  use  them  cannot  be  made  subject  to  such  conditions 
and  stipulations  so  that  the  failure  to  observe  them  will  give 
rise  to  the  statutory  action  in  equity  for  an  infringement. 

3.  Such  restrictive  contracts  may  be  specifically  enforceable  in 
equity  as  between  the  parties. 

4.  "Whether  specific  performance  will  be  given  to  the  promisee 
against  third  parties  taking  the  chattel  with  notice  of  the  restric- 
tions may  be  open  to  debate.  Specific  performance  should  not, 
however,  be  refused  because  the  contract  is  illegal  as  between 
the  parties.  It  should  not  be  refused  because  there  is  anything 
inimical  to  the  interests  of  the  public  in  such  restrictions  as  were 
involved  in  the  Dr.  Miles  and  Motion  Picture  Patents  cases. 

38 


Ch.  4]  SERVITUDES  IN   CHATTELS  [§  47b 

It  is  entirely  conceivable,  however,  that  some  restrictions  might 
be  of  such  character  that  while  they  were  valid  at  law  or  even 
in  equity,  as  between  the  parties,  it  would  be  proper,  in  the  inter- 
ests of  the  public,  to  refuse  enforcement  of  them  against  third 
parties,  even  with  notice.  If  specific  performance  against  third 
parties  is  refused  in  the  case  of  restrictions  such  as  were  involved 
in  the  Dr.  Miles  and  Motion  Picture  Patents  cases,  it  should 
be  on  the  ground  that  it  is  against  public  policy  that  any  servi- 
tudes be  created  in  chattels  by  the  specific  performance  in  equity 
of  restrictions  against  third  parties  with  notice. 


39 


CHAPTER  V 

COMBINATIONS 

[good  and  bad  trusts]  1 

§48.  The  term  "trusts"  has  now  come  to  refer  to  extensive 
combinations  of  capital  in  the  commercial  and  industrial  world, 
regardless  of  what  the  form  of  the  organization  may  be.  The 
combination  may  be  by  agreement  of  the  units  combining  that 
they  will  sell  through  a  common  board  or  committee,^  or  by  the 
device  of  trustees  holding  under  a  trust  agreement  stock  controls 
in  subsidiary  corporations,  or  the  controlling  interests  in  partner- 
ships and  other  forms  of  industrial  and  commercial  units,^  or 
by  a  parent  corporation  holding  stock  controls  in  subsidiary  cor- 
porations,^ or  by  the  actual  purchase  of  plants  and  their  opera- 
tion as  a  single  industrial  unit  by  a  single  corporation.'^  In 
describing  the  size  of  the  combination  which  is  sufficient  to  war- 
rant its  being  called  a  "trust,"  we  may  adopt  the  phraseology 
of  the  government  in  its  brief  in  the  International  Harvester 
and  Steel  cases.  The  combination  to  be  a  trust  must  embrace 
"units  which  together  occupy  a  preponderant  position  in  a  given 
industry."  To  ask  whether  a  trust  is  good  or  bad  is  only  to 
ask  where  the  line  shall  be  drawn  between  combinations  which 

1— Eeprinted   from    30    Harv.    L.  30  N.  E.  279  (1892)   [649];  Stand- 

Eev.  830.  ard  Oil  Co.  v.  United  States,  221  U. 

2— This  was  the  form  of  the  com-  S.  1    (1910)    [780,  1072]. 

bination    attacked    by    the    govern-  4 — This  was  the  form  of  organiza- 

ment  in  United  States  v.  Addyston  tion  of  the  Standard  Oil  Company 

Pipe    &    Steel    Co.,    85    Fed.    271  of  New  Jersey  as  it  was  reorgan- 

(1898)     [625];    Addyston    Pipe    &  ized  in  1899.     Standard  Oil  Co.  v. 

Steel  Co.  V.  United  States,  175  U.  S.  United  States,  221  U.  S.  1   (1910) 

211  (1899)   [772,  1047].  [780,  1072]. 

3 — This  was  the  form  of  the  com-  5 — This    was    the    form    of    the 

bination  known  as  the  Standard  Oil  combination    of    the    International 

Trust     under     the     Standard     Oil  Harvester  Company.    United  States 

Trust  Agreement  in  1882.     State  v.  v.  International  Harvester  Co.,  214 

Standard  Oil  Co.,  49  Oh.   St.   137,  Fed.  987   (1914). 

40 


Ch.  5] 


COMBINATIONS 


[§49 


are  legal  and  those  which  are  illegal.  It  will  be  convenient  in 
the  beginning  to  indicate,  first  those  that  are  clearly  illegal,  and 
then  those  that  are  clearly  legal.  By  this  process  we  shall  arrive 
at  the  debatable  ground. 

Section  1 

combinations  clearly  illegal 

§  49.  Since  the  Standard  Oil  and  Tobacco  Cases,®  it  has 
become  articulate  that  a  combination  of  properties  (in  whatever 
form)  which,  by  reason  of  its  size  and  preponderant  position  in 
the  business,  has  the  power  and  the  purpose,  or  uses  its  power 
to  exclude  others  from  the  business  by  illegal  acts  and  unlawful 
and  unfair  methods  of  competition,  is  an  attempt  at  monopoly, 
and  a  restraint  of  trade  and  illegal  at  common  law,  and,  if  inter- 
state commerce  is  involved,  under  the  Sherman  Act.  It  is  what 
may  be  called  a  bad  trusts 


6— Standard  Oil  Co.  v.  United 
States,  221  U.  S.  1  (1910)  [780, 
1072];  United  States  v.  American 
Tobacco  Co.,  221  U.  S.  106  (1910). 

7 — Continental  Wall  Paper  Co.  v, 
Voight  &  Sons  Co.,  212  U.  S.  227 
(1909)  [799,  1211];  United  States 
V.  Motion  Picture  Patents  Co.,  225 
red.  800  (1915)  (semble) ;  United 
States  V.  Eastman  Kodak  Co.,  226 
Ted.  62  (1915);  230  Fed.  522 
(1916) ;  United  States  v.  Corn 
Products  Eefining  Co.,  234  Fed.  964 
(1916) ;  Dunbar  v.  American  Tele- 
phone Co.,  224  111.  9,  79  N.  E.  423 
(1906)  ;  238  111.  456,  87  N.  E.  521 
(1909)  [105];  Distilling  &  Cattle 
Feeding  Co.  v.  People,  156  111.  448, 
41  N.  E.  188  (1895);  Arnot  v. 
Pittson  &  Elmira  Coal  Co.,  68  N. 
Y.  558  (1877)    [224]. 

One  of  the  early  examples  of  com- 
bination (often  on  rather  a  small 
scale)  which  had  the  purpose  to  ex- 


clude others  by  means  of  an  unlaw- 
ful excluding  practice,  is  found  in 
the  cases  where  several  competitors 
secretly  combined  and  eliminated 
competition,  while  pretending  to  the 
public  to  be  competing.  Craft  v. 
McConoughy,  79  UL  346  (1875); 
Fairbank  v.  Leary,  40  Wis.  637 
(1876).  This  device  obviously  de- 
ceived the  public  and  tended  to 
keep  others  out  of  the  business, 
since  one  would  be  less  likely  to 
enter  a  field  already  occupied  by  a 
considerable  number  of  competitors, 
than  if  obliged  to  contend  with 
only  one  other  unit. 

On  the  same  principle  the  secret 
combination  of  bidders  not  to  bid 
against  each  other  at  an  auction  is 
illegal.  Gibbs  v.  Smith,  115  Mass. 
592  (1874) ;  Woodruff  v.  Berry,  40 
Ark.  251  (1882);  National  Bank 
of  the  Metropolis  v.  Sprague,  20 
N.  J.  Eq.  15^  (1869). 


41 


§50]  THE  COMMON  LAW  [Ch.5 

§50.  It  seems  incredible  that  anyone  es^er  should  have 
doubted  the  soundness  of  this  proposition.  The  common-law 
conception  of  monopoly  was  that  of  a  business  carried  on  to  the 
exclusion  of  others.^  Formerly  this  was  effected  by  the  exercise 
of  the  proper  governmental  authority  which  directly  excluded 
all  but  the  favored  person  from  carrying  on  the  business  and 
imposed  penalties  upon  anyone  who  violated  the  excluding  man- 
date. "When,  however,  the  crown  attempted  to  grant  the  privi- 
lege of  carrying  on  a  trade  exclusively  of  all  others  its  action 
was  held  void  in  the  Case  of  Monopolies.®  In  this  decision  the 
policy  of  the  common  law  against  monopoly  in  the  sense  of  a 
special  privilege  to  carry  on  a  business  to  the  exclusion  of  all 
others  was  established  and  found  effective  to  nullify  the  grant 
of  the  crown.  Quite  recently  large  aggregations  of  capital  occu- 
pying a  preponderant  position  in  the  business  have  discovered 
that  they  possess  a  power  (resulting  from  their  size)  to  indulge 
in  practices  which  actually  operate  to  exclude  smaller  units 
from  the  field.  Some  of  these  were  plainly  unlawful,  such  as 
inducing  another  trader  to  break  his  contract,  fraud,  libel,  intimi- 
dation, coercion,  and  transportation  rebates.  These  may  be 
called  "unlawful  competition. "  ^^^  Other  excluding  practices 
were  more  subtle  and  have  become  known  as  "unfair  methods 
of  competition."  They  are  methods  which  may  be  lawful  and 
proper  when  used  by  one  unit  against  another  which  can  retali- 

8 — ^Inst.  181;  Kellogg  v.  Larkin,  The  California  Steam  Navigation 

3  Finn.    (Wis.)    123    (1851)    [142].  Co.   v.  Wright,  6   Cal.    258    (1856) 

Chappel  V.   Brockway,   21   Wend.  (last  quotation  approved) ;   Hawk. 

(N.  Y.)   157,  163   (183^).     ("The  P.  C,  bk.  1,  ch.  29  (quoted  in  the 

defendant  can  gain  nothing  by  giv-  opinion   of   the    court   in    Standard 

ing   the   transaction    a   bad    name,  Oil  Co.  v.  United  States,  221  U.  S. 

unless   the   facts    of   the   case   will  1   (1910)    [1072];  Mitchel  v.  Eeyn- 

bear    him    out.      He    calls    this    a  olds,   1   P.   Wms.   181    (1711)    [1]. 

monopoly.    That  is  certainly  a  new  See  also  the  many  cases  where  the 

kind  of  monopoly  which  only  secures  absence  of  any  exclusion  of  others 

the  plaintiff  in  the  exclusive  enjoy-  is    noted    as    minimizing    the    ten- 

ment  of  his  business  as  against  a  dency  toward  monopoly.   Post,  §  55, 

single     individual,     while     all     the  note  19. 

world  beside  are  left  at  full  liberty  9 — 11  Eep.  84  (1603). 

to    enter    upon    the    eame    enter-  10 — See  Wyman,  ConteoIi  or  thk 

prise.")  Market,  36  et  seq. 

42 


Ch.  5]  COMBINATIONS  [§51 

ate  on  fairly  even  terms  with  the  same  methods.^i  They  become 
unfair  and  unlawful  at  least  when  used  by  a  unit  occupying  a 
preponderant  position  against  a  smaller  one,  which,  because  it  is 
smaller,  cannot  retaliate  effectively.^^  Qf  these  the  most  obvious 
and  best  known  is  ** local  price-cutting."  i3  The  large  unit  can 
put  the  small  one  out  of  business  by  price-cutting  below  cost 
in  the  locality  or  the  market  which  the  smaller  unit  serves.  By 
thus  demolishing  each  small  unit  singly  it  may  exclude  all  from 
the  field.  This  was  not,  of  course,  as  effective  as  an  act  of  par- 
liament. Such  methods  might  never  result  in  an  actual  mon- 
opoly. But  they  were  effective  to  accomplish  enough  in  that 
direction  to  be  an  illegal  attempt  at  monopoly.  If  the  crown 
was  denied  on  grounds  of  public  policy  any  power  to  grant  an 
exclusive  privilege  to  carry  on  a  business,  is  it  not  quite  plain 
that  a  similar  privilege  granted  by  a  "trust"  to  itself  would  be 
an  illegal  attempt  at  monopoly  and  a  restraint  of  trade  entirely 
contrary  to  the  common  law,  and,  if  interstate  commerce  was 
involved,  void  under  the  Sherman  Act? 

§  51.  The  fact  that  the  mere  combination  of  competing  rail- 
roads, or  other  competing  public  service  corporations  operating 
under  special  franchises,  is  illegal  at  common  law  and  under  the 
Sherman  Act,  without  regard  to  any  purpose  to  monopolize,  or 
excluding  practices,^*  is  an  application  of  the  principle  which 
underlies  the  Standard  Oil  and  Tobacco  cases.  Kailroads  and 
many  other  public  utilities  cannot  be  constructed  and  operated 
without  special  legislative  authority,  the  exercise  of  the  right 

11— Mogul  Steamship  Co.  v.  Mc-  (1904)     [910];     United    States    v. 

Gregor,  Gow  &  Co.,  L.  R.    [1892]  Union  Pacific  R.  Co.,  226  U.  S.  61, 

A.  C.  25  [309].  470    (1912)    [981];    Gibbs  v.    Con- 

12— Post  §§93  et  seq.  solidated  Gas  Co.  of  Baltimore,  130 

13— Other     methods     of     tmfair  U.  S.  396  (1889)    [721];  People  v. 

competition  are  listed  and  explained  Chicago    Gas    Trust    Co.,    130    111. 

in  an  admirable  article  on  Unfair  268,  22  N.  E.  798    (1889)    [735]; 

Competition  by  William  S.  Stevens,  Chicago  Gas  Light  Co.  v.  People's 

29  Pol.  Sci.  Quaet.  282,  461.  Gas  Light  Co.,  121  111.  530,  13  N. 

14— United   States  v.   Trans-Mis-  E.  169  (1887) ;  Chic.  M.  &  St.  P.  Ry. 

Bouri  Freight  Ass'n,  166  U.  S.  290  Co.  v.  Wabash,  St.  L.  &  P.  Ry.  Co., 

(1897)  [862];  United  States  v.  61  Fed.  993  (1894);  Texas  &  Pac. 
Joint-Traffic  Ass'n,  171  U.  S.  505  Ry.  Co.  v.  Southern  Pac.  Ry.  Co., 

(1898)  [904];  Northern  Securities  41  La.  Ann.  970,  6  So.  888  (1889). 
Co.  V.  United  States,  193  U.  S.  197 

43 


§51]  THE   COMMON  LAW  [Ch.  5 

of  eminent  domain,  and  the  right  to  use  or  cross  the  public  streets 
and  highways.  It  follows  that  the  very  nature  of  the  business 
and  the  special  privileges  required  are  such  that  it  is  against 
the  public  interest  to  allow  anybody  and  everybody  to  engage 
in  it.  It  follows  that  one  who  is  given  the  special  privileges 
required  is  protected  by  the  proper  governmental  authority  from 
any  competition.  The  exclusion  of  the  public  is  supplied  by  the 
state  just  as  clearly  as  where  an  act  of  parliament  granted  to  A 
the  exclusive  privilege  of  carrying  on  a  business  and  penalized 
all  others  who  attempted  to  do  it.  If  several  persons  are  per- 
mitted to  construct  and  operate  the  public  utility  in  question 
on  a  competitive  basis,  they  are  still  protected  from  any  compe- 
tition on  the  part  of  others.  The  field  of  this  sort  of  business 
is  unfree.  Furthermore,  the  fact  that  several  are  permitted  to 
operate  a  public  utility  in  competition  is  a  determination  by  the 
public  authorities  that  competition  between  the  units  in  the  field 
is  desirable.  Under  such  circumstances  the  elimination  of  any 
existing  competition  between  any  of  the  units  is,  in  and  of  itself, 
illegal.  It  defies  the  policy  determined  by  the  public  authorities 
who  have  permitted  a  number  of  competitors  to  enter  the  field. 
It  tends  directly  to  produce  monopoly  regardless  of  any  exclud- 
ing purposes  or  practices  because  the  exclusion  of  others  is  pro- 
vided for  by  the  non-action  of  governmental  authority. 

§  52.  It  is  entirely  possible  that  the  public  may  be  excluded 
from  a  given  business  by  the  conditions  under  which  it  is  carried 
on  or  by  an  actual  limitation  of  a  natural  resource  or  both. 
Thus,  if  several  competitors  controlled  all  the  known  mineral 
deposits  of  a  certain  sort,  it  might  be  that  any  combination 
between  them  would  be  illegal.  Certainly  any  combination  which 
resulted  in  one  having  a  preponderant  position  in  the  business 
might  be  regarded  as,  in  and  of  itself,  illegal.  The  field  would 
be  inherently  unfree  at  the  time  the  combination  occurred.  So 
those  who  controlled  the  only  mineral  deposits  which  were,  on 
account  of  the  transportation  cost  from  other  sources,  prac- 
tically available  for  a  certain  considerable  area,  might  not  be 
permitted  to  combine  to  the  extent  of  conferring  upon  one  unit 
a  preponderant  position  in  that  business.^^     The  so-called  nec- 

15— See  Morris  Run  Coal  Co.  v.      Blue  Stone  Co.,  164  N.  Y.  401,  58 
Barclay   Coal   Co.,   68   Pa.   St.   173      N.  E.  525   (1900)    [712]. 
(1871)    [680];   Cummings  v.  Union 

44 


Ch.  5]  COMBINATIONS  [§53 

essaries  of  life  must  be  had  for  use  at  once,  or  within  a  brief 
space  of  time.  There  may  be  a  sufficient  quantity  on  hand  in 
the  world  at  large,  but  the  users  cannot  wait  to  have  resen^es 
brought  up  from  a  distance.  There  will  be  an  ample  supply 
after  the  next  year's  crops  are  harvested,  but  the  population 
must  have  the  present  supply  before  that  time.  Such  circum- 
stances create  the  excluding  conditions.  Hence,  a  combination 
which  attempts  to  secure  the  reserves  of  such  supplies  at  any 
given  point,  and  goes  so  far  at  least  as  to  secure  a  preponderant 
position  in  the  control  of  the  market,  has  all  the  elements  of  an 
illegal  attempt  at  monopoly.  During  the  time  that  the  supplies 
acquired  are  needed,  the  market  is  not  free.  All  but  those  actu- 
ally in  it  are  excluded.  The  only  protection  of  the  public  from 
monopoly  prices  is  the  maintenance  of  the  status  quo  of  existing 
competitions,  or  at  least  the  prevention  of  any  sudden  and 
violent  change  in  the  competitive  status  of  the  units  engaged. 
This  is  the  basis  for  the  illegality  of  the  so-called  * '  corner. ' '  ^^ 
It  makes  no  difference,  of  course,  whether  there  is  involved 
merely  the  union  of  properties  by  purchase,  or  of  properties  and 
managers  by  combination. 

Section  2 

combinations  clearly  legal 

§  53.  Where  a  business  is  normally  free  to  all  to  enter  and  no 
excluding  conditions  exist  and  no  excluding  practices  are  indulged 
in,  it  is  clear  that  there  may  be  a  great  deal  of  lawful  combina- 
tion among  competitors  which  necessarily  eliminates  competition 
between  the  units  combined.  Indeed,  it  may  safely  be  affirmed 
that  all  such  combinations  which  do  not  result  in  a  unit  occupy- 
ing a  "preponderant  position  in  the  industry"  are  valid.  This 
is  clear  where  the  combination  of  properties  occurs  by  the  pur- 
chase of  the  business  of  one  competitor  by  another,  and  where 
not  only  is  the  sale  valid,  but  a  restrictive  covenant  on  the  part 
of  the  seller  not  to  carry  on  the  same  business  is  also  upheld.^' 

16 — Eaymond      v.      Leavitt,     46  17 — Nordenfelt    v.    Maxim    Nor- 

Mich.   447,    9   N.   W.    525    (1881) ;  denfelt    Guns    &    Ammunition    Co., 

Samuels  v.   Oliver,   130  lU.   73,  22  [1894]    A.   C.   535    [33];    Diamond 

N.  E.  499  (1889).  Match  Co.  v.  Boeber,  106  N.  Y.  473, 

45 


53] 


THE   COMMON  LAW 


[Ch.5 


So  where  the  combination  occurs  by  uniting  not  only  the  prop- 
erties which  formerly  competed  but  also  the  managers,  it  is  valid, 
and  restrictive  covenants  on  the  part  of  the  managers  combin- 
ing not  to  compete  have  been  upheld.^^     These  cases  indicate 


13  N.  E.  419  (1887)  [55];  LesUe 
V.  Lorillard,  110  N.  Y.  519,  18  N. 
E.  363  (1888)  [65];  Wood  v. 
Whitehead  Bros.  Co.,  165  N.  Y. 
545,  59  N.  E.  357  (1901);  United 
States  Chemical  Co.  v.  Provident 
Chemical  Co.,  64  Fed.  946  (1894) 
[98] ;  Kellogg  v.  Larkin,  3  Pinney 
(Wis.)  123  (1851)  [142];  Chappel 
V.  Broekway,  21  Wend.  (N.  Y.)  157 
(1839) ;  Van  Marter  v.  Babcock, 
23  Barb.  (N.  Y.)  633  (1857); 
Moore  &  Handley  Hardware  Co.  v. 
Towers  Hardware  Co.,  87  Ala.  206, 
6  So.  41  (1888);  Beard  v.  Dennis, 
6  Ind.  200  (1855);  California 
Steam  Navigation  Co.  v.  Wright, 
6  Cal.  258  (1856);  Hubbard  v. 
Miller,  27  Mich.  15  (1873) ;  Mapes 
V.  Metcalf,  10  N.  D.  601,  88  N. 
W.  713  (1901);  National  Benefit 
Co.  V.  Union  Hospital  Co.,  45  Minn. 
272,  47  N.  W.  806  (1891)  [94]; 
Wickens  v.  Evans,  3  Y.  &  J.  318 
(1829)  [84]. 

18 — Dolph  V.  Troy  Laundry  Ma- 
chinery Co.,  28  Fed.  553  (1886); 
United  States  v.  Nelson,  52  Fed. 
646  (1892);  Eobinson  v.  Suburban 
Brick  Co.,  127  Fed.  804  (1904); 
United  States  v.  Quaker  Oats  Co., 
232  Fed.  499  (1916)  (especially 
opinion  of  Mack,  J.) ;  Ontario  Salt 
Co.  V.  Merchants  Salt  Co.,  18  Grant 
(U.  C.)  540  (1871)  [616];  Central 
Shade  EoUer  Co.  v.  Cushman,  143 
Mass.  353,  19  N.  E.  629  (1887) 
[601] ;  Gloucester  Isinglass  &  Glue 
Co.  V.  Russia  Cement  Co.,  154  Mass. 
92,  27  N.  E.  1005  (1891)  ;  Anchor 
Electric  Co.  v.  Hawkes,  171  Mass. 


101,  50  N.  E.  509  (1898) ;  Skrainka 
V.  Scharringhausen,  8  Mo.  App. 
522  (1880);  Meredith  v.  Zinc  & 
Iron  Co.,  55  N.  J.  Eq.  211,  37  Atl. 
539  (1897);  Marsh  v.  Russell,  66 
N.  Y.  288  (1876);  Oakdale  Mfg. 
Co.  V.  Garst,  18  E.  I.  484,  28  Atl. 
973  (1894)  [78];  Queen  Ins.  Co.  v. 
State  of  Texas,  86  Tex.  250,  24  S. 
W.  397  (1893)  [605];  Sayre  v. 
Louisville  Union  Benevolent  Ass'n, 
1  Duvall  (Ky.)  143  (1863);  Jones 
V.  North,  L.  E.  19  Eq.  426  (1875). 
In  United  States  v.  International 
Harvester  Co.,  214  Fed.  987  (1914), 
the  court  said,  p.  999:  "If  the 
five  companies  which  formed  the 
International  had  been  small,  and 
their  combination  had  been  essen- 
tial to  enable  them  to  compete  with 
large  corporations  in  the  same  line, 
then  their  uniting  would,  in  the 
light  of  reason,  not  have  been  in 
restraint  of  trade,  but  in  the 
furtherance  of  it;  .  .  ."In  the 
brief  of  the  government  presented  to 
the  United  States  Supreme  Court  in 
the  same  case  it  is  conceded:  "Nor 
was  it  intended  to  prohibit  all  com- 
binations of  competing  units,  but 
only  such  as  are  sufficiently  im- 
portant and  comprehensive  to  bear 
some  reasonable  relation  to  the  evils 
— the  breakdown  of  the  competitive 
system,  etc. — against  which  the 
Act  was  designed  to  guard."  On 
page  99,  in  summing  up,  the  same 
brief  states:  "It  [the  Sherman 
Act]  permits  combinations  of  com- 
petitive units  within  limits." 
Contra,   Slaughter  v.   The   Thacker 


46 


Ch.  5]  COMBINATIONS  [§  53 

that  where  the  combinatioii  does  not  occupy  a  preponderant  posi- 
tion in  the  business,  and  there  are  no  excluding  purposes  or 
practices,  the  mere  elimination  of  competition  between  the  units 
is  not  a  ground  for  holding  it  illegal.  The  common  law  certainly 
has  never  attempted  to  put  out  a  rule  which  would  compel  the 
maintenance  of  the  status  quo  of  every  existing  combination  by 
enforcing  general  restraints  on  alienation  to,  and  upon  the  free- 
dom to  contract  and  unite  with,  competitors.  Neither  has  any 
court  suggested  that  any  difference  of  result  could  be  made  be- 
tween a  combination  of  properties  which  had  competed,  and  a 
combination  both  of  competing  properties  and  managers  as 
well.  Imagine  anyone  objecting  that  all  the  partnerships  of 
competing  lawyers,  bankers,  and  corner  grocers  were  necessarily 
illegal  because  they  were  combinations  of  competing  properties 
and  managers  which  eliminated  competition  between  them! 
Imagine  anyone  upholding  a  public  policy  in  favor  of  the  owner 
of  a  business  having  the  privilege  of  selling  his  property  with 
the  greatest  freedom  at  the  best  price  obtainable,  who  would  not 
admit  the  existence  of  the  same  policy  in  favor  of  a  man  in 
business  selling  his  services  and  experience  on  the  same  terms! 

Coal  &  Coke  Co.,  55  W.  Va.  642,  managers   of  the   selling  units   re- 

47  S.  E.  247    (1904)    (where,  how-  main   in  the   business,   taking   part 

ever,  the  opinion  of  the  court  was  as  ofl&cers  of  the  new  corporation, 

delivered  by  the  dissenting  member,  Oakdale  Mfg.  Co.  v.  Garst,  18  B.  I. 

who  sets  forth  in  full  the  reasons  484,  28  Atl.  973  (1894).     So  where 

against  the  decision).  two  units  in  the  same  business  agree 

Not  infrequently  it  is  difficult  to  to    divide   the    territory    and    make 

say  whether  there  has  been  a  com-  reciprocal  covenants  with  each  other 

bination  by  the  sale  of  properties  not  to  do  business  in  the  territory 

to  a  competitor,  or  a  combination  assigned  to  the  other,  the  transae- 

of  properties  and  managers  as  well.  tion  may  be  looked  at  either  as  a 

For  instance,  when  a  new  corpora-  sale  of  part  of  the  business  of  each, 

tion  is  formed   and   the  properties  and    therefore     a    combination     of 

of     several     competing    units     are  properties  only,  or  it  may  be  looked 

transferred  to  it  in  return  for  stock  at  as  a  combination  of  properties 

which  is  distributed  to   the  stock-  and    managers    serving    the    entire 

holders  or  the  owners  of  the  prop-  field  in  a  manner  mutually  arranged 

erty   sold,   the  transaction  may  be  between  them.    Wickens  v.  Evans,  3 

looked   upon   as   a   combination   of  Y.  &  J.  318  (1829)   [84];  National 

properties  merely,  the  managers  of  Benefit  Co.  v.  Union  Hospital  Co., 

the  selling  units  going  out  of  the  45  Minn.  272,  47  N.  W.  806  (1  31) 

business,    or   it   may    be   that   the  [94]. 

47 


§54] 


THE   COMMON  LAW 


[Ch.5 


§  54.  The  authorities  which  uphold  the  legality  of  combina- 
tions, whether  of  properties  alone,  or  of  properties  and  managers, 
where  the  combination  does  not  result  in  a  unit  occupying  a  pre- 
ponderant position  in  the  business,  are  clearly  sound. 

§  55.  Of  course  there  is  in  every  such  case  the  elimination  of 
competition  between  the  competing  units  combined.  This  is  not 
less  in  the  case  of  the  union  of  the  properties  by  sales  and  the 
restriction  by  covenants  not  to  compete,  exacted  from  the  sellers, 
than  it  is  where  the  properties  and  the  managers  themselves  are 
united.  In  both  alike  competition  between  the  property  and  the 
managers  is  ended,  at  least  for  the  time  being.  This,  of  course, 
tends  in  some  degree  toward  monopoly.  So  long,  however,  as 
the  combination  does  not  occupy  a  preponderant  position  in  the 
business  and  there  are  no  excluding  purposes  or  practices, ^^ 


19 — ^In  the  following  cases,  the 
absence  of  any  exclusion  of  others 
from  the  business  was  noted  as 
minimizing  the  tendency  toward 
monopoly  from  the  elemination  of 
competition  between  the  units  com- 
bined. 

Diamond  Match  Co.  v.  Eoeber, 
106  N.  Y.  473,  483,  13  N.  E.  19 
(1887)  [55].  ("But  the  business 
is  open  to  all  others,  and  there  is 
little  danger  that  the  public  will 
suffer  harm  from  lack  of  persons 
to  engage  in  a  profitable  indus- 
try";) Leslie  v.  Lorillard,  110  N. 
T.  519,  534,  18  N.  E.  363  (1888) 
[65]    (same  language). 

Wood  V.  Whitehead  Bros.  Co.,  165 
N.  Y.  545,  551,  59  N.  E.  357  (1901) 
[72].  ("But  contracts  between 
parties,  which  have  for  their  object 
the  removal  of  a  rival  and  com- 
petitor in  a  business,  are  not  to  be 
regarded  as  contracts  in  restraint 
of  trade.  They  do  not  close  the 
field  of  competition,  except  to  the 
particular  party  to  be  affected.") 

Oakdale  Mfg.  Co.  v.  Garst,  18  E. 
I.    484,    487,    28    Atl.    973     (1894) 


[78].  ("But  combinations  for  mu- 
tual advantage  which  do  not  amount 
to  a  monopoly,  but  leave  the  field 
of  competition  open  to  others,  are 
neither  within  the  reason  nor  the 
operation  of  the  rule."  Page  488: 
"But  even  so,  not  only  is  the  field 
open  to  the  other  company,  equal 
in  strength  to  either  of  these,  but  it 
is  also  open  to  competition  from 
companies  in  other  parts  of  the 
country  and  to  the  formation  of  new 
companies. ' ') 

Wickens  v.  Evans,  3  Y.  &  J.  318, 
329  (1829)  [84].  ("Not  a  mo- 
nopoly, except  as  between  them- 
selves ;  because  every  other  man  may 
come  into  their  districts  and  vend 
his  goods."  Page  330:  "If  the 
brewers  or  distillers  of  London  were 
to  come  to  the  agreement  suggested, 
many  other  persons  would  soon  be 
found  to  prevent  the  result  antici- 
pated; and  the  consequence  would, 
perhaps,  be,  that  the  public  would 
obtain  the  articles  they  deal  in  at  a 
cheaper  rate.") 

National  Benefit  Co.  v.  Union 
Hospital  Co.,  45  Minn.  272,  275,  47 


48 


Ch.5] 


COMBINATIONS 


[§56 


much  competition  will  remain,  and  the  progress  toward  monopoly 
will  be  comparatively  slight.  Such  as  may  occur  is  entirely  out- 
weighed by  the  public  interests  which  are  subserved  by  permit- 
ting the  combination. 

§  56.  First,  there  is  the  social  interest  in  individual  freedom 
of  economic  action.  As  applied  to  the  situation  under  discus- 
sion this  means  that  there  is  a  public  policy  in  favor  of  freedom 
to  business  managers  and  owners  to  run  their  business  as  they 
think  best,  combining  with  others  or  not,  as  they  deem  advisable. 
It  is  not  infrequently  spoken  of  as  the  fundamental  policy  in 


N.  W.  806  (1891)  [94].  ("Neither 
one  nor  both  of  these  companies 
have  any  exclusive  right  to  engage 
in  this  business,  it  being  open  to  all. 
Hence  this  contract  does  not,  and 
cannot,  create  any  monopoly.") 

United  States  Chemical  Co.  v. 
Provident  Chemical  Co.,  64  Fed. 
946,949  (1894)  [98].  ("The  facts 
of  this  case  disclose  no  tendency  to 
monopoly.  Monopoly  implies  an  ex- 
clusive right,  from  which  all  others 
are  debarred,  and  to  which  they  are 
subservient. ' ') 

Kellogg  V.  Larkin,  3  Pinney 
(Wis.)  123,  139  (1851)  [142]. 
("And  while  we  have  no  privileged 
classes  here,  but  little  individual, 
and  less  associated  capital,  and 
while  our  resources  are  so  imper- 
fectly developed,  while  the  avenues 
to  enterprise  are  so  multiplied,  so 
tempting  and  so  remunerative,  giv- 
ing to  labor  the  greatest  freedom 
for  competition  with  capital,  per- 
haps, that  it  has  yet  enjoyed,  I  ques- 
tion if  we  have  much  to  fear  from 
attempts  to  secure  exclusive  advan- 
tages in  trade,  or  to  reduce  it  to  few 
hands."  Page  145:  "Now  could 
the  parties  possibly  have  intended 
by  this  simple  contract,  to  vest  in 
the  mill  owners  the  sole  exercise  of 


the  traffic  in  wheat,  throughout  the 
State  of  Wisconsin?  ...  I  say 
there  was  no  monopoly  intended, 
none  effected.  We  cannot  fail  to 
perceive,  that  in  spite  of  this  con- 
tract, all  the  rest  of  Wisconsin  was 
an  open  and  unrestricted  market  for 
the  sale  of  wheat.  And  even  in  Mil- 
waukee, the  market  was  open  to  the 
fiercest  competition  of  all  the  world, 
except  these  obligors.") 

Trenton  Potteries  Co.  v.  Oliphant 
58  N.  J.  Eq.  507,  523,  43  Atl.  723 
(1899)  [161].  ("The  entire  capi- 
tal of  the  country,  except  theirs,  is 
free  to  be  employed  in  the  manu- 
facture. ' ') 

Chappel  V.  Brockway,  21  Wend. 
(N.  Y.)  157,  163  (1839).  ("The 
defendant  can  gain  nothing  by  giv- 
ing the  transaction  a  bad  name, 
unless  the  facts  of  the  ease  will  bear 
him  out.  He  calls  this  a  monopoly. 
That  is  certainly  a  new  kind  of 
monopoly  which  only  secures  the 
plaintiff  in  the  exclusive  enjoyment 
of  his  business  as  against  a  single 
individual,  while  all  the  world  be- 
side are  left  at  full  liberty  to  enter 
upon  the  same  enterprise.")  The 
California  Steam  Navigation  Co.  v. 
Wright,  6  Cal.  258,  262  (1856) 
(last  quotatiou  approved). 


Kales  Sum,  B.  of  T.- 


49 


56] 


THE  COMMON  LAW 


[Ch.i 


favor  of  freedom  of  contract,  protected  by  the  "due  process" 
clause  of  our  constitutions.^^ 


20 — Diamond  Match  Co.  v.  Eoe- 
ber,  106  N.  Y.  473,  482,  13  N.  E. 
19  (1887)  [55].  ("It  is  clear  that 
public  policy  and  the  interests  of 
society  favor  the  utmost  freedom  of 
contract,  within  the  law,  and  re- 
quire that  business  transactions 
should  not  be  trammeled  by  un- 
necessary restrictions. ' ') 

Leslie  v.  Lorillard,  110  N.  Y.  519, 
533,  18  N.  E.  363  (1888)  [65]. 
("The  object  of  government,  as  in- 
terpreted by  the  judges,  was  not  to 
interfere  with  the  free  right  of  man 
to  dispose  of  his  property  or  of  his 
labor.") 

Wood  V.  Whitehead  Bros.  Co.,  165 
N.  Y.  545,  551,  59  N.  E.  357  (1901) 
[72].  ("In  the  present  practically 
unlimited  field  of  human  enterprise 
there  is  no  good  reason  for  restrict- 
ing the  freedom  to  contract,  or  for 
fearing  injury  to  the  public  from 
contracts  which  prevent  a  person 
from  carrying  on  a  particular  busi- 
ness. ' ') 

National  Benefit  Co.  v.  Union 
Hospital  Co.,  45  Minn.  272,  276,  47 
N.  W.  806  (1891)  [94].  ("A  con- 
tract may  be  illegal  on  grounds  of 
public  policy  because  in  restraint 
of  trade,  but  it  is  of  paramount 
public  policy  not  lightly  to  inter- 
fere with  freedom  of  contract. '  *) 

United  States  Chemical  Co.  v. 
Provident  Chemical  Co.,  64  Fed.  946, 
949  (1894)  [98].  ("In  discussing 
this  phase  of  the  subject,  we  must 
not  lose  sight  of  some  other  prin- 
ciples, the  disregard  of  which  would 
be  more  harmful  to  public  interest 
than  monopolies.  The  right  to  con- 
tract is  a  cardinal  element  of  con- 


stitutional liberty,  and,  as  such, 
should  be  jealously  guarded.") 

Anchor  Electric  Co.  v.  Hawkes, 
171  Mass.  101,  105,  50  N.  E.  509 
(1898).  ("The  general  principle 
that  arrangements  in  restraint  of 
trade  are  not  favored  is,  however, 
firmly  established  in  law,  and  now, 
as  well  as  formerly,  is  given  effect 
whenever  its  application  will  not  in- 
terfere with  the  right  of  everybody 
to  make  reasonable  contracts. 
Whenever  one  sells  a  business  with 
its  good  win,  it  is  for  his  benefit,  as 
well  as  for  the  benefit  of  the  pur- 
chaser, that  he  should  be  able  to  in- 
crease the  value  of  that  which  he 
sells  by  a  contract  not  to  set  up  a 
new  business  in  competition  with 
the  old.") 

Smith's  Appeal,  113  Pa,  St.  579, 
590,  6  Atl.  251  (1886).  ("The 
principle  is  this:  Public  policy  re- 
quires that  every  man  shall  not  be 
at  liberty  to  deprive  himself  or  the 
State  of  his  labor,  skill  or  talent, 
by  any  contract  that  he  enters  into. 
On  the  other  hand,  public  policy  re- 
quires that  when  a  man  has,  by  skill 
or  by  any  other  means,  obtained 
something  which  he  wants  to  sell,  he 
should  be  at  liberty  to  sell  it  in  the 
most  advantageous  way  in  the  mar- 
ket; and  in  order  to  enable  him  to 
sell  it,  it  is  necessary  that  he  should 
be  able  to  preclude  himself  from 
entering  into  competition  with  the 
purchaser. ' ') 

Trenton  Potteries  Co.  v.  Oliphant, 
58  N.  J.  Eq.  507,  514,  43  Atl.  723 
(1899)  [161].  ("A  tradesman,  for 
example,  who  has  engaged  in  a  man- 
ufacturing   business    and    has    pur- 


50 


Ch.5] 


COMBINATIONS 


[§57 


§  57.  Second,  there  is  the  use  of  the  combination  as  a  means 
of  eliminating  ruinous  competition.  Competition  in  trade  and 
industry  is  constantly  inimical  to  the  public  interest  in  two 
respects:  It  tends  to  develop  too  much  competition  and  conse- 
quent loss  to  everyone  in  the  business.^!    Too  much  competition 

chased  land,  installed  a  plant,  and     as  necessarily  conducive  to  the  pub- 


acquired  a  trade  connection  and 
good  will  thereby,  may  sell  his  prop- 
erty and  business  with  its  good  will. 
It  is  of  public  interest  that  he  shall 
be  able  to  make  such  a  sale  at  a  fair 
price  and  that  his  purchaser  shall 
be  able  to  obtain  by  his  purchase 
that  which  he  desired  to  buy.  Ob- 
viously, the  only  practical  mode  of 
accomplishing  that  purpose  is  by 
the  vendor's  contracting  for  some 
restraint  upon  his  acts,  preventing 
him  from  engaging  in  the  same  busi- 
ness in  competition  with  that  which 
he  has  sold.")  Kellogg  v.  Larkin, 
3  Pinney  (Wis.)   123  (1851)  [142]. 

21— Leslie  v.  Lorillard,  110  N.  Y. 
S19,  534,  18  N.  E.  363  (1888)  [65]. 
("I  do  not  think  that  competition 
is  invariably  a  public  benefaction; 
for  it  may  be  carried  on  to  such  a 
degree  as  to  become  a  general 
evil.") 

Oakdale  Mfg.  Co.  v.  Garst,  18 
B.  I.  484,  487,  28  Atl.  973  (1894) 
[78].  (Argeement  found  to  have 
been  made  on  account  of  **a  ruin- 
ous competition.") 

Wickens  v.  Evans,  3  Y.  &  J.  318, 
328  (1829)  [84].  (Agreement 
made  in  view  of  the  fact  that  the 
parties  "had  sustained  great  loss 
and  inconvenience  by  reason  of  ex- 
ercising their  trade  in  the  same 
places. ' ') 

National  Benefit  Co.  v.  Union 
Hospital  Co.,  45  Minn.  272,  275,  47 
N.  W.  806  (1891)  [94].  ("Exces- 
sive competition,  is  not  now  accepted 


lie  good.") 

Whitney  v.  Slayton,  40  Me.  224, 
230-231  (1855).  ("Whether  com- 
petition in  trade  be  useful  to  the 
public  or  otherwise,  will  depend 
on  circumstances.  I  am  rather  in- 
clined to  believe,  that,  in  this  coun- 
try at  least,  more  evU  than  good  is 
to  be  apprehended  from  encouraging 
competition  among  rival  tradesmen, 
or  men  engaged  in  commercial  con- 
cerns. There  is  a  tendency,  I  think, 
to  overdo  trade,  and  such  is  the  en- 
terprise and  activity  of  our  citizens, 
that  small  discouragements  will 
have  no  injurious  effect,  in  checking 
in  some  degree,  a  spirit  of  competi- 
tion. 

"In  this  country,  particularly, 
such  is  the  facility  with  which  per- 
sons are  enabled,  without  capital,  to 
embark  in  various  enterprises,  and 
such  the  desire  to  try  experiments 
therein,  that  it  often  turns  out, 
when  these  experiments  have  been 
successful,  in  some  of  these  under- 
takings, others  will  enter  into  them 
in  such  numbers  that  ruin  to  most 
of  them  so  engaged  is  the  conse- 
quence. Hence  those  who  retire, 
and  for  a  proper  consideration  con- 
tract with  others  not  to  engage  in 
any  particular  business  for  a  lim- 
ited time,  and  in  a  particular  place, 
have  often,  if  not  generally,  been 
the  successful  party.") 

Chappel  V.  Brockway,  21  Wend. 
(N.  Y.)  157,  164  (1839).  ("Com- 
petition jin  business,  though  gener- 


51 


§57] 


THE   COMMON  LAW 


tCh.5 


and  the  intensity  of  competitive  methods  may  produce  too  little 
competition  by  eliminating  others  from  the  business.  The  com- 
petitive system  looks  to  the  operation  of  economic  principles 
under  freedom  of  action  to  avoid  the  evils  of  each  extreme.22 
The  freedom  of  others  to  enter  the  business  prevents  too  little 
competition;  the  elimination  of  some  competition  from  time  to 
time  prevents  too  much,  A  rule  of  law  which  made  all  sales 
to  competitors,  and  all  combinations  of  competitors,  illegal, 
would  leave  the  door  open  wide  to  an  indefinite  increase  in  com- 
petition, and  at  the  same  time  obstruct  the  healthy  lessening  of 
competition.  This  would  promote  all  the  evils  of  too  much 
competition  in  order  to  prevent  the  evils  of  too  little.  It  would 
be  a  rule  which  encouraged  competition  only  to  require  that  the 
status  quo  of  every  existing  competition  be  indefinitely  retained. 
The  public  interest  must  suffer  severely  from  any  such  rule.  The 
■unsuccessful  competitor  under  it  would  in  most  instances  be 
eliminated  by  a  total  failure  and  a  maximum  loss,  instead  of 


ally  beneficial  to  tte  puHie,  may  be 
carried  to  such  excess  as  to  become 
an  evil.") 

Kellogg  V.  Larkin,  3  Pinney 
(Wis.)  123,  150  (1851)  [142].  ("I 
believe  universal  observation  will  at- 
test that  for  the  last  quarter  of  a 
century,  competition  in  trade  has 
caused  more  individual  distress,  if 
not  more  public  injury,  than  the 
•want  of  competition.") 

Slaughter  v.  The  Thacker  Coal  & 
Coke  Co.,  55  W.  Va.  642,  650,  47 
S.  E.  247  (1904),  per  Poffenbarger, 
dissenting.  ("Competition  is  said 
to  be  the  life  of  trade,  but  undue 
or  excessive  competition  has  been 
judicially  declared  hurtful  and  in- 
jurious to  the  public") 

22— Per  Pitney,  V.  C,  in  Mere- 
dith V.  New  Jersey  Zinc  &  Iron  Co., 
55  N.  J.  Eq.  211,  221,  37  Atl.  539 
(1897)  [81].  ("Now,  I  am  unable 
to  find  any  foundation,  either  in  law 
or  in  morals,  for  the  notion  that  the 
public  have  the  right  to  have  these 


private  owners  of  this  sort  of  prop- 
erty continue  to  do  business  in  com- 
petition with  each  other.  No  doubt 
the  public  has  reasonable  ground 
to  entertain  the  hope  and  expecta- 
tion that  its  individual  members 
will  generally,  in  their  several  strug- 
gles to  acquire  the  means  of  com- 
fortable existence,  compete  with 
each  other.  But  such  expectation  is 
based  entirely  upon  the  exercise  of 
the  free  will  and  choice  of  the  in- 
dividual, and  not  upon  any  legal  or 
moral  duty  to  compete,  and  can 
never,  from  the  nature  of  things, 
become  a  matter  of  right  on  the 
part  of  the  public  against  the  indi- 
vidual. In  fact,  the  essential  qual- 
ity of  that  series  of  acts  or  course 
of  conduct  which  we  call  competi- 
tion is  that  it  shall  be  the  result  of 
the  free  choice  of  the  individual, 
and  not  of  any  legal  or  moral  obli- 
gation or  duty.")  Diamond  Match 
Co.  V.  Eoeber,  106  N.  Y.  473,  13  N. 
E.  19  (1887)   [55],  mpra. 


52 


Ch.  5]  COMBINATIONS  [§  58 

having  a  chance  to  save  his  loss  by  selling  out  to,  or  combining 
with,  a  more  successful  rival.  Where  the  competitors  were 
evenly  matched  all  would  be  subjected  indefinitely  to  a  profitless 
competition  or  a  maximum  loss,  instead  of  being  permitted  to 
combine  and  rescue  their  properties.  Industrial  depression,  due 
to  overproduction  and  to  too  many  competitors,  would  necessarily 
right  itself  slowly  and  with  a  maximum  of  failures  and  losses.^^ 
§  58.  Third,  it  can  hardly  be  contended  that  mere  combination 
and  elimination  of  competition  between  the  units  combined  cre- 
ates exorbitant  prices.  What  is  the  judicial  test  of  an  exorbitant 
or  unreasonable  price  ?  There  seems  to  have  been  an  impression 
not  entirely  wanting  in  the  judiciary  that  any  rise  in  prices  which 
follows  a  combination  must  be  unreasonable.  This  is  a  short- 
sighted view.  A  moment's  reflection  should  make  it  clear  that 
general  condemnation  of  advances  in  prices  ultimately  affects 
everyone  unfavorably.  It  is  equivalent  to  a  general  condemna- 
tion of  prosperity.  It  is  not  the  advance  in  prices  which  is 
objectionable,  but  only  the  unreasonable  and  excessive  advance. 
In  determining  what  prices  are  unreasonably  high,  are  the  courts 
to  go  into  cost  accounting  and  then  add  a  percentage  of  profit 
and  reach  a  specific  finding  as  to  what  is  an  unreasonable  price 
in  any  business  under  consideration?  Obviously  not.  Such  a 
course  would  be  absurd  and  impracticable.  The  courts  must 
find  a  workable  and  practicable  general  rule,  the  application  of 
which  will  provide  a  wide  margin  of  freedom  to  the  business  unit 
and  a  chance  for  the  exceptional  rewards  which  come  from  suc- 
cessful management.  This  leaves  the  courts  no  choice  except  to 
rely  upon  freedom  to  enter  the  business  and  freedom  to  continue 
in  the  business  as  the  means  of  preventing  excessive  prices.^* 

23 — Oakdale    Manufacturing    Co.  24 — ^Dolpli  v.  Troy  Laundry  Ma- 

V.  Garst,  18  E.  I.  484,  487,  28  Atl.  chinery     Co.,     28     Fed.     553,     555 

973    (1894)    [78].      ("But  it  does  (1886).      ("Tliose    who    might    be 

not   follow  that  every   combination  unwilling  to   pay   the  prices   asked 

in  trade,  even  though  such  combina-  by  the  parties  could  find  plenty  of 

tion  may  have  the  effect  to  diminish  mechanics   to   make  such  machines, 

the  number  of  competitors  in  busi-  and  the  law  of  demand  and  supply 

ness,  is   therefore   illegal.     Such   a  would  effectually  counteract  any  se- 

rule   would   produce   greater   public  rious  mischief  likely  to  arise  from 

injury  than  that  which  it  would  seek  the   attempt  of   the   parties  to  get 

to  cure.")  exorbitant  prices  for  their  machines. 

53 


58] 


THE  COMMON  LAW 


[Ch.5 


On  the  other  hand  they  must  allow  combination  to  some  extent 
to  prevent  unprofitable  prices  and  ruinous  competition.  The 
highest  price  which  can  be  obtained  while  the  business  is  free  to 
all  to  enter  and  no  one  in  it  occupies,  as  a  result  of  combination, 
a  preponderant  position,  must  be  tal^en  by  the  courts  as  fair. 
The  fact  that  prices  are  higher  than  they  were  as  a  result  of 
some  combination  which  eliminates  some  competition,  does  not 
make  those  prices  exorbitant. 

§59.  Finally,  and  most  important  of  all,  is  the  interest  of 
society  in  the  carrying  on  of  business  by  larger  units.  This  is 
not  only  favored  by  public  policy,  but  it  is  a  condition  to  the 
existence  of  our  present  social  order.  It  is  as  vital  to  the  welfare 
of  the  country  as  that  freedom  of  contract — freedom  of  the  manag- 
ers of  business  to  manage  without  interference  from  the  legisla- 
ture— ^which  the  due  process  clause  of  the  Constitution  protects.^s 
In  the  last  century  one  of  the  phases  of  our  industrial  revolution 
has  been  the  shift  from  small  to  large  business  units.    In  a  cen- 


It  is  quite  legitimate  for  any  trader 
to  obtain  the  highest  price  he  caH 
for  any  commodity  in  which  he 
deals.  It  is  equally  legitimate  for 
two  rival  manufacturers  or  traders 
to  agree  upon  a  scale  of  selling 
prices  for  their  goods,  and  a  division 
of  their  profits.  It  is  not  obnoxious 
to  good  morals,  or  to  the  rights  of 
the  public,  that  two  rival  traders 
agree  to  consolidate  their  concerns, 
and  that  one  shall  discontinue  busi- 
ness, and  become  a  partner  with  the 
other,  for  a  specified  term.  It  may 
happen,  as  the  result  of  such  an  ar- 
rangement, that  the  public  have  to 
pay  more  for  the  commodities  in 
which  the  parties  deal;  but  the  pub- 
lie  are  not  obliged  to  buy  of  them. 
Certainly,  the  public  have  no  right 
to  complain,  so  long  as  the  transac- 
tion falls  short  of  a  conspiracy  be- 
tween the  parties  to  control  prices 
by  creating  a  monopoly.") 

United  States  v.  Nelson,  52  Fed. 
646,    647    (1892).      ("Unless    the 


agreement  involves  an  absorption  of 
the  entire  traflic  in  lumber,  and  is 
entered  into  for  the  purpose  of  ob- 
taining the  entire  control  of  it  with 
the  object  of  extortion,  it  is  not  ob- 
jectionable to  the  statute,  in  my 
opinion.  Competition  is  not  stifled 
by  such  an  agreement,  and  other 
dealers  would  soon  force  the  parties 
to  the  agreement  to  sell  at  the  mar- 
ket price,  or  a  reasonable  price,  at 
least.") 

Slaughter  v.  The  Thacker  Coal 
Co.,  55  W.  Va.  642,  649,  47  S.  E. 
247  (1904),  per  Poffenbarger,  Pres. 
("In  the  absence  of  some  great 
combination,  virtually  controlling 
the  production  and  price  of  a  com- 
modity in  the  country,  the  price  is 
regulated  and  determined  by  the 
law  of  supply  and  demand. ' ') 

25 — "  'Due  Process,'  the  Inar- 
ticulate Major  Premise,  and  the 
Adamson  Act,"  26  Yale  L.  J.  519, 
(May,  1917). 


54 


Ch.  5]  COMBINATIONS  [§  59 

tury  individuals  have  been  succeeded  by  partnerships,  partner- 
ships by  corporations,  corporations  of  small  or  limited  capital  by 
corporations  with  large  capital.  Acts  which  limited  corporate 
capital  have  been  succeeded  by  acts  which  place  no  limit  upon 
the  amount  of  capital.  Acts  which  placed  obstructions  in  the 
way  of  increasing  capital  have  been  succeeded  in  some  states  by 
acts  which  allow  the  corporation  to  increase  its  capital  stock  at 
will.  The  large  corporation  has  been  succeeded  by  the  parent 
company  which  has  already  been  allowed  in  some  states  to  hold 
stock  controls  in  subsidiary  corporations.  If  we  look  at  industry 
and  commerce  from  the  outward  physical  point  of  view,  it  is 
plain  that  the  admittedly  legal  operating  unit  of  today  is,  in 
every  line,  incredibly  large  in  comparison  with  the  unit  of  half 
a  century  ago,  "When  we  turn  to  the  labor  units  we  find  the 
same  process  going  on  of  shifting  from  the  individual  to  the 
collective  unit.  The  individual  labor  units  have  been  combined 
to  make  the  local  unions,  local  unions  have  been  combined 
to  make  the  statewide  and  country-wide  labor  units.  Unions 
have  been  combined  not  only  locally,  and  nationally,  according 
to  occupation,  but  territorially  without  regard  to  occupation. 
As  one  looks  back  upon  what  has  been  going  on  there  can  be  no 
doubt  that  the  social  order  has  shifted  from  a  primitive  depend- 
ence upon  the  individual  industrial  unit  to  the  collective  unit, 
and  then  to  the  larger  collective  unit,  and  that  the  size  of  our 
industrial  units  has  been  magnified  to  an  extraordinary  degree. 
A  very  slight  consideration  of  the  matter  makes  it  clear  that 
to  put  commerce  and  industry  back  into  the  units  of  fifty,  or  even 
twenty-five  years  ago,  would  be  to  disrupt  business  and  do  an 
incalculable  harm  to  the  public  welfare.  Clearly,  then,  we  may 
rely  upon  a  strong  public  policy  in  favor  of  the  shift  from  the 
individual  and  small  collective  unit  to  the  larger  collective  unit.^^ 

26 — Jones  v.  Clifford's  Ex'r,  5  an  occupation  in  life,  scarcely  a 
Fla.  510,  515  (1854).  ("Associa-  branch  of  trade,  from  the  very 
tions  are  so  common  an  element,  not  largest  to  the  smallest,  that  does 
only  in  commerce,  but  in  all  the  not  feel  the  exciting  and  invigorat- 
affairs  of  life,  that  it  would  be  ing  influence  of  this  wonderful  in- 
rather  perilous  on  the  part  of  the  strumentality.  It  made  and  con- 
Court,  to  assert  that  they  impair  ducts  our  government,  constructs 
competition,  destroy  emulation  and  our  railroads,  our  steam  vessels,  our 
diminish  exertion.    There  is  scarcely  magnificent  ships,   our   temples   of 

55 


§  60]  THE   COMMON  LAW  [Ch.  5 

Section  3 

combinations  which  have  a  preponderant  position  but  no 
excluding  purposes  or  practices 

§  60.  Suppose  now  that  we  have,  in  a  business  nonnally  free, 
a  combination  which  on  the  one  hand  has  no  intent  to  exclude 
others  from  the  business  and  is  guilty  of  no  unlawful  or  unfair 
excluding  practices,  but  which,  on  the  other  hand,  "embraces 
units  which  together  occupy  a  preponderant  position  in  a  given 
industry."  Is  this  a  good  trust  or  a  bad  trust?  Is  it  illegal 
at  common  law,  and,  if  interstate  commerce  be  involved,  under 
the  Sherman  Act  ? 

§  61.  Even  if  we  assume  that  when  the  Sherman  Act  refers 
to  combinations  "in  restraint  of  trade"  or  attempts  to  monopo- 
lize, it  refers  to  such  combinations  as  were  illegal  at  common  law 
because  they  restrained  trade  or  were  attempts  to  monopolize  ^"^ 
we  do  not  get  very  far,  because  the  common  law,  while  it  was 
clear  about  some  results,  gave  no  unequivocal  answer  to  the 
problem  now  under  consideration.    Even  if  common-law  authori- 

worship,  structures  for  public  and  lated,"  the  opinion  of  tlie  cotlrt 
private  use,  our  manufactories,  proceeds  as  follows  (p.  60) :  "Thus 
creates  our  institutions  for  learning,  not  specifying,  but  indubitably  con- 
builds  up  our  cities  and  towns.  templating  and   requiring  a   stand- 

"Its  very  of&ce  is  to  do  what  in-  ard,  it  follows  that  it  was  intended 
dividual  exertion  may  not  accom-  that  the  standard  of  reason  which 
plish,  and  in  a  degree  distinguishes  had  teen  applied  at  the  common 
civilized  from  savage  life.  Why  law  and  in  this  country  in  dealing 
then  should  this  important  agency  with  subjects  of  the  character  em- 
be  denied  to  this  meritorious  class  of  braced  by  the  statute  was  intended 
our  citizens?  They  are  in  general  to  be  the  measure  used  for  the  pur- 
men  of  small  means,  to  whom  an  pose  of  determining  whether,  in  a 
association  may  not  only  be  desir-  given  case,  a  particular  act  had  or 
able,  but  necessary  and  indispen-  had  not  brought  about  the  wrong 
Eftble. ' ')  against  which  the  statute  provided. ' ' 

27 — Posi  §§  108  et  seq.  Standard  Again  the  court  says  (p.  62) 
Oil  Co.  V.  United  States,  221  U.  S.  **.  .  .  the  criteria  to  be  resorted 
1  (1900)  [780,  1072].  (After  in-  to  in  any  given  case  for  the  pur- 
sisting  "that  some  standard  should  pose  of  ascertaining  whether  viola- 
be  resorted  to  for  the  purpose  of  tions  of  the  section  have  been 
determining  whether  the  prohibition  committed  is  the  rule  of  reason 
contained  in  the  statute  had  or  had  guided  by  the  esiailished  law,  etc. 
not  in  any  given  case  been  vio-  .    .    .  ") 

56 


Ch.  5]  COMBINATIONS  [§  62 

ties  be  found  dealing  with,  the  point,  nevertheless  the  Supreme 
Court  of  the  United  States  is  still  entitled  to  declare  for  itself 
what  the  common  law  may  be  as  a  preliminary  to  applying  the 
Sherman  Aet.^^  Henee  the  determination  of  the  result  in  the 
ease  put  will  depend  (apart  from  the  question  of  whether  inter- 
state commerce  is  affected)  upon  considerations  quite  as  much 
at  large  as  if  the  case  were  being  considered  at  common  law  for 
the  first  time. 

§  62.  The  solution  of  our  problem  is  to  be  attained  by  bal- 
ancing the  interests  of  the  public  and  the  parties  involved. ^^  In 
support  of  the  legality  of  the  combination  is  the  public  policy  in 
favor  of  freedom  to  manage  and  carry  on  business,  the  elimina- 
tion of  ruinous  competition,  and  the  development  of  larger  col- 
lective units.  Against  the  legality  of  the  combination  is  the 
tendency  toward  monopoly  in  the  fact  that  competition  between 
the  units  combined  is  eliminated.  This,  however,  is  minimized 
by  the  fact  that  there  are  no  excluding  purposes  or  unlawful  or 
unfair  excluding  practices,  and  the  field  is  free.  Apart  from 
the  fact  of  size  and  preponderant  position  in  the  business  the 
balance  of  interests  is  clearly  in  favor  of  the  combination.  The 
entire  question  is  whether  that  balance  is  still  maintained  when 
we  add  the  fact  that  the  combination  has  a  preponderant  position 
in  the  business. 

Three  courses  are  open  to  the  courts:  First,  they  may  hold 
the  fact  of  size  and  preponderant  position  in  the  industry  to  be, 
in  and  of  itself,  sufficient  to  turn  the  balance  against  the  validity 
of  the  combination.  This  will  mean  that  there  can  be  no  good 
or  bad  trusts.  All  trusts,  in  the  sense  of  large  combinations  or 
aggregations  of  capital,  occupying  a  preponderant  position  in  the 
business,  would  be  bad  trusts.  No  other  combinations  would 
properly  be  called  trusts.  Second,  the  courts,  on  the  other  hand, 
might  regard  the  fact  of  size  and  preponderant  position  as  insuf- 

28 — Thus  m  Dr.  Miles  Medical  Co.  common-law    decisions    Ijy    respect- 

V.  Park  &  Sons  Co.,  220  U.  S.  373  able   courts  to  the  contrary.     See 

(1911)    [838],   the   Supreme   Court  ante  §  32,  notes  2,  3  and  4.     Post 

of  the  United  States  decided  in  ef-  §  116. 

feet  that  the  common  law  forbade  29 — Horwood  v.  Millar's  Timber 

such  contracts  to  keep  up  the  price  &  Trading  Co.,  [1917]  1  K.  B.  305, 

on  resale  as  were  there  involved,  317,  318. 
in  spite  of  the  fact  that  there  were 

57 


§  62]  THE  COMMON  LAW  [Ch.  5 

ficient,  in  and  of  itself,  to  turn  the  balance  of  interests  against 
the  validity  of  the  combination.  This  would  mean  that  there 
might  be  good  and  bad  trusts.  The  bad  trusts  would  be  those 
which  had  the  power  and  the  purpose,  or  used  their  power,  to 
exclude  others  by  illegal  and  unfair  methods  of  competition.  The 
others  would  be  good  trusts.  Third,  between  these  extremes  there 
is  an  intermediate  position.  Size  and  preponderant  position 
may  be  regarded  as  prima  facie  evidence  of  an  intent  to  exclude 
others,  or  to  use  the  power  of  the  combination  to  effect  unlaw- 
ful and  unfair  excluding  practices, — thus  shifting  to  the  com- 
bination the  burden  of  going  forward  with  evidence  to  nega- 
tive such  intent  and  use  of  power.  In  this  view  there  will  still 
'be  good  trusts  and  bad  trusts.  The  line  between  them  will  be 
drawn  at  the  place  where  they  have  the  excluding  purpose  or 
practice  illegal  and  unfair  excluding  methods.  But  size  and 
preponderant  position  are  still  given  an  important  effect  as  prima 
facie  evidence  of  the  excluding  intent. 

The  State  of  the  Authorities 

§  63.  As  to  which  of  the  above  mentioned  positions  the  courts 
have  taken,  the  cases  are  far  from  conclusive. 

§64.  (1)  Several  have  adopted  the  second  view,  and  sus- 
tained the  legality  of  the  combination.^^ 

30 — Trenton     Potteries     Co.     v.  trade  and  handled  all  the  trade  there 

Oliphant,  58  N.  J.  Eq.  507,  43  Atl.  was.     No   one   was   frozen   out  by 

723  (1899)   [161];  United  States  v.  their  combination  and  there  was  no 

Keystone  Watch  Case  Co.,  218  Fed.  greater  monopoly  than  existed  be- 

502,  510   (1915).     ("Size  does  not  fore.")      United   States  v.   United 

of   itself   restrain   trade   or   injure  States  Steel  Corporation,  223  Fed. 

the  public;  on  the  contrary,  it  may  55  (1915). 

increase  trade  and  may  benefit  the  Fonotipia   v.    Bradley,    171    Fed. 

consumer.")  951    (1909)    semble,    ("Nor    is    a 

United  States  v.  Prince  Line,  220  *  monopoly,'  in  the  sense  meant  by 

Fed.  230,  232  (1915).     (Agreement  the  statute,  merely  the  complete  oc- 

between  all  the  shipowners  engaged  cupation   of   a   certain  field   where 

in  the  same  trade  as  to  the  number  that   occupation   does   not  unfairly 

of  vessels  each  should  operate,  the  exclude  other  competitors.    The  fact 

dates  of  sailings,  exchange  of  freight  that  a  certain   person  is  the  only 

between  lines,  and  rates  of  freight,  dealer  in  certain  goods  may  be  en- 

The  court  said:     "At  the  time  it  tirely  consistent  with  a  free  and  un- 

-was  formed  the  parties  were  in  the  limited  opportunity  to  every  other 

58 


Ch.5] 


COMBINATIONS 


[§65 


§  65.  (2)  The  third  view  was  one  of  the  grounds  of  decision 
in  the  Standard  Oil  case  ^^  and  was  clearly  announced  in  the 


person  to  deal  in  the  same  goods, 
and  the  law  of  proper  demand  and 
supply  may  result  in  but  one  source 
from  which  certain  things  can  be 
secured,  without  thereby  rendering 
the  person  supplying  these  goods 
liable  to  the  accusation  of  illegally 
maintaining  a  monopoly.") 

United  States  v.  Eastman  Kodak 
Co.,  226  Fed.  62,  80  (1915). 
(**.  .  ,  that  the  size  and  va- 
ried character  of  the  enterprise  do 
not  of  themselves  constitute  a  vio- 
lation of  the  statute.  To  this  prin- 
ciple I  assent.  There  is  no  limit  in 
this  country  to  the  extent  to  which 
a  business  may  grow,  and  the  ac- 
quisitions of  property  in  the  present 
case,  standing  alone,  would  not  be 
deemed  an  illegal  monopoly;  but 
when  such  acquisitions  are  accom- 
panied by  an  intent  to  monopolize 
and  restrain  interstate  trade  by  an 
arbitrary  use  of  the  power  resulting 
from  a  large  business  to  eliminate  a 
weaker  competitor,  then  they  no 
doubt  come  within  the  meaning  of 
the  statute.") 

United  States  v.  American  Can 
Co.,  230  Fed.  859,  901  (1916),  234 
Fed.  1019  (1916).  (The  court, 
though  finding  the  American  Can 
Co.  was  originally  organized  with 
the  intent  to  exclude  others,  in- 
dulged in  unlawful  excluding  prac- 
tices, yet  by  reason  of  the  fact  that 
it  had  for  a  considerable  period  had 
no  illegal  purposes  or  used  any  ex- 
cluding practices,  a  dissolution  was 
refused,  and  the  bill  merely  retained 
for  a  possible  future  action.) 

United  States  v.  Nelson,  52  Fed. 
646,  647  (1892).  ("Unless  the 
agreement  involves  an  absorption  of 


the  entire  traflSc  in  lumber,  and  is 
entered  into  for  the  purpose  of  ob- 
taining the  entire  control  of  it  with 
the  object  of  extortion,  it  is  not 
objectionable  to  the  statute,  in  my 
opinion. ' ') 

See  also  Queen  Ins.  Co.  v.  State 
of  Texas,  86  Tex.  250,  24  S.  W.  397 

(1893)  [605].  (Combination  of 
fifty-seven  foreign  insurance  corpo- 
rations doing  business  in  the  State 
of  Texas.)  Oakdale  Mfg.  Co.  v. 
Garst,    18    R.    I.   484,   28    Atl.    973 

(1894)  [78];  Skrainka  v.  Schar- 
ringhausen,  8  Mo.  App,  522  (1880). 

31— Standard  Oil  Co.  v.  United 
States,  221  U.  S.  1,  75  (1911)  [780, 
1072].  In  Texas  Standard  Oil  Co. 
V.  Adoue,  83  Tex.  650,  19  S.  W. 
274  (1892),  where  the  combination 
was  held  illegal,  the  court,  never- 
theless, intimated  that  under  certain 
circumstances  it  might  appear  that 
the  same  combination  would  be  per- 
fectly legal — thus  indicating  that 
the  inference  in  favor  of  illegality 
arising  from  the  combination's  pre- 
ponderant position  in  the  industry 
might  be  rebutted.  So  in  Jones  v. 
Clifford's  Ex'r,  5  Fla.  510  (1854), 
a  combination  of  all  the  pilots  serv- 
ing a  certain  port,  but  merely  for 
the  purpose  of  apportioning  their 
duties  and  earnings,  was  sustained. 
The  facts  rebutted  any  inference  of 
an  intent  to  exclude  others.  In 
Skrainka  v.  Scharringhausen,  22 
Mo.  App.  522  (1880),  any  intent  to 
exclude  others  was  rebutted  by 
proof  that  the  combination  was 
necessary  in  order  to  stop  a  ruinous 
competition  and  promote  the  busi- 
ness. 


59 


§65]  THE  COMMON  LAW  [Ch.  5 

opinion  of  the  court.    In  stating  the  grounds  for  sustaining  the 
findings  and  decision  of  the  court  below,  the  supreme  court  said : 

"Because  the  unification  of  power  and  control  over  petroleum  and 
its  products  which  was  the  inevitable  result  of  the  combining  in  the 
New  Jersey  corporation  by  the  increase  of  its  stock  and  the  transfer 
to  it  of  the  stocks  of  so  many  other  corporations,  aggregating  so  vast  a 
capital,  gives  rise,  in  and  of  itself,  in  the  absence  of  countervailing 
circumstances,  to  say  the  least,  to  the  prima  facie  presumption  of  intent 
and  purpose  to  maintain  the  dominancy  over  the  oil  industry,  not  as  a 
result  of  normal  methods  of  industrial  development,  but  by  new  means 
of  combination  which  were  resorted  to  in  order  that  greater  power  might 
be  added  than  would  otherwise  have  arisen  had  normal  methods  been 
followed,  the  whole  with  the  purpose  of  excluding  others  from  the  trade, 
and  thus  centralizing  in  the  combination  a  perpetual  control  of  the 
movements  of  petroleum  and  its  products  in  the  channels  of  interstate 
commerce."  32 

Then  the  court  justifies  the  decree  below : 

"Because  the  prima  facie  presumption  of  intent  to  restrain  trade,  to 
monopolise  and  to  bri7ig  about  monopolisation,  resulting  from  the  act  of 
expanding  the  stock  of  the  New  Jersey  corporation,  and  vesting  it  with  such 
vast  control  of  the  oil  industry,  is  made  conclusive,  etc.     .     .     . " 

A  little  later  the  court,  in  referring  to  certain  facts  which 
were  urged  as  rebutting  any  monopoly  tendency,  said: 

".  .  .  they  might  well  serve  to  add  additional  cogency  to  the  pre- 
sumption of  intent  to  monopolize  which  we  have  found  arises  from  the 
unquestioned  proof  on  other  subjects." 

§  66.  Practically  all  the  cases  where  the  combination  has  been 
held  illegal  at  common  law  or  under  the  Sherman  Act,  without 

32 — This  is  a  particularly  strong  It    could    fairly    be    said    that   the 

statement,  because  in  the  Standard  units  combined  in  the  Standard  Oil 

Oil   Case  the  combination  attacked  of  New  Jersey  in   1899   never  had 

and  dissolved  was  the  Standard  Oil  competed.     Hence,  the  prima  facie 

of    New    Jersey    reorganized    as    a  evidence  of  intent  to  exclude  others 

holding  company  in   1899.     It  was  arose   from    size    and   preponderant 

not    a    combination    of    competing  position    in    the    industry    brought 

units.     The    subsidiaries    had    been  about  by  combination   without   the 

non-competing  (except  perhaps  in  a  suppression  of  any  existing  eompe- 

few  instances   not   disclosed  in  the  tition  between  the  units  combined, 

case  reported)    since  a  time  prior  See  post  §§  127,  128, 
to  the  passage  of  the  Sherman  Act. 

60 


Ch.5] 


COMBINATIONS 


[§66 


actual  proof  of  any  excluding  purposes  or  practices,  may  be 
explained  consistently  with  the  third  view.  Thus  in  the  Addys- 
ton  Pipe  case  33  the  facts  relied  upon  by  the  United  States 
Supreme  Court  to  hold  the  combination  illegal  were  those  quoted 
from  the  opinion  of  Taft,  J.,  in  the  Circuit  Court  of  Appeals. 
These  disclosed  merely  a  combination  occupying  a  preponderant 
position  in  a  given  market,  and  effected  by  a  contract  which 
provided  for  the  making  of  sales,  and  the  fixing  of  prices  by  a 
central  authority  or  committee.  It  may  be  assumed  that  this 
is  a  case  where  size  and  preponderant  position  in  the  business 
without  any  excluding  purposes  or  practices,  caused  the  combi- 
nation to  be  illegal.^'*  Neither  the  opinion  of  the  Court  of  Appeals, 
nor  the  Supreme  Court,  in  the  least  discloses  whether  the  pre- 
ponderant position  is,  in  and  of  itself,  a  ground  of  illegality,  or 
merely  prima  facie  evidence  of  an  excluding  purpose  to  be  carried 
out  by  illegal  excluding  practices.  The  result  reached  might  go 
upon  either  ground.  Many  other  cases  are  subject  to  a  similar 
analysis.35    So  where  the  competing  properties  were  bought  up 


33 — United  States  v.  Addyston 
Pipe  &  Steel  Co.,  85  Fed.  271  (1898) 
[625];  175  U.  S.  211  (1899)  [772, 
1047]. 

34 — Taft,  J.,  in  the  circuit  court 
of  appeals  relied  upon  the  illegal 
practice  of  the  combination  in  sup- 
pressing competitive  bidding  on 
municipal  contracts.  This,  the  su- 
preme court  omitted  all  reference 
to,  no  doubt,  upon  the  ground  that 
if  relied  upon  solely,  it  would  not 
justify  a  dissolution  of  the  com- 
bination, and  if  not  so  relied  upon 
it  was  unnecessary  to  mention  it  at 
aU. 

35 — Morris  Run  Coal  Co.  v.  Bar- 
clay Coal  Co.,  68  Pa.  St.  173  (1871) 
[680]  (Combination  of  all  the 
bituminous  coal  mines  in  a  given 
district,  and  all  but  one  at  that  time 
open  which  supplied  bituminous 
coal  in  a  large  district) ;  Central 
Ohio  Salt  Co.  v.  Guthrie,  35  Ohio  St. 


666  (1880)  [690]  (Combination  in- 
cluded all  the  salt  producers  in  a 
large  salt-producing  territory) ; 
People  V.  Sheldon,  139  N.  Y.  251, 
34  N.  E.  785  (1893)  [695]  (Com- 
bination of  "all  the  retail  coal 
dealers  in  the  city  of  Lockport  ex- 
cept one ") ;  People  v.  Milk  Ex- 
change, 145  N.  Y.  267,  272,  39  N. 
E.  1062  (1895)  [707]  ("Acting 
upon  these  by-laws,  the  defendant's 
board  of  directors  have  from  time 
to  time  during  its  corporate  exist- 
ence fixed  the  price  of  milk  to  be 
paid  by  dealers,  and  the  prices  so 
fixed  have  largely  controlled  the 
market  in  and  about  the  city  of  New 
York  and  of  the  milk-producing 
territory  contiguous  thereto.  These 
facts  are  significant,  and  we  are 
unable  to  escape  the  conviction  that 
there  was  a  combination  on  the  part 
of  the  milk  deaiers  and  creamery 
men  in  and  about  the  city  of  New 


61 


§66] 


THE  COMMON  LAW 


[Ch.5 


and  united  in  a  new  corporation  or  board  of  trustees  under  the 
old  managers,  or  under  new  managers,  the  size  of  the  combination 
and  its  preponderant  position  in  the  business  caused  it  to  be 
held  iUegal.3«  But  whether  this  result  was  reached  because  the 
size  was,  in  and  of  itself,  a  basis  for  illegality,  or  because  it  was 
only  prima  facie  and  unrebutted  evidence  of  an  intent  to  exclude 
others  from  the  field,  is  not  in  the  least  made  plain. 

§  67.  In  a  number  of  cases,  it  must  be  conceded,  there  was 
lacking  direct  proof  of  the  preponderant  position  of  the  combina- 
tion in  the  business.^'?    In  the  Standard  Oil  of  Ohio  case,^^  the 


York  to  fix  and  control  the  price 
that  they  should  pay  for  milk"); 
Cummings  v.  Union  Blue  Stone 
Co.,  164  N.  Y.  401,  403,  58  N. 
E.  525  (1900)  [712]  (Assuming 
blue  stone  quarrying  and  selling  to 
be  a  business  separate  from  stone 
quarrying  and  selling  generally,  the 
combination  in  question  was  of  fif- 
teen producers  "of  nearly  the  whole 
product  of  Hudson  river  bluestone, 
and  of  at  least  ninety  per  centum  of 
the  whole  amount  of  such  stone  sold 
in  the  New  York  market  to  cus- 
tomers in  various  states  east  of  the 
Mississippi  river ' ')  ;  Emery  v.  Ohio 
Candle  Co.,  47  Ohio  St.  320,  321, 
24  N.  E.  600  (1890)  [716]  (Com- 
bination of  "the  manufacturers  of 
95  per  cent  of  the  star  candles  in 
that  part  of  the  United  States  lying 
east  of  the  114°  of  longtitude  west 
of  Greenwich,  or  substantially  all 
the  territory  east  of  the  western 
boundary  of  Utah");  Nester  v. 
Continental  Brewing  Co.,  161  Pa. 
St.  473,  29  Atl.  102  (1894)  (Com- 
bination of  the  forty-five  brewers 
of  the  county  of  Philadelphia) ;  Po- 
cahontas Coke  Co.  V.  Powhatan 
Coal  &  Coke  Co.,  60  W.  Va.  508,  56 
S.  E.  264  (1906)  (Combination  of 
twenty  coke  manufacturing  and 
producing  corporations  operating  in 


the  same  field) ;  Milwaukee  Masons 
&  Builders'  Ass'n  v.  Niezerowski, 
95  Wis.  129,  70  N.  W.  166  (1897) 
(Combination  of  "nearly  six-sev- 
enths of  the  mason  builders  in 
Milwaukee");  Stanton  v.  Allen,  5 
Denio  (N.  Y.)  434  (1848)  (Com- 
bination among  the  whole,  or  a  large 
proportion,  of  the  proprietors  of 
boats  on  the  Erie  and  Oswego 
canals) ;  Hoffman  v.  Brooks,  6 
Ohio  Dec.  reprint,  1215  (1884) 
(Combination  of  all  the  tobacco 
warehousemen  in  Cincinnati) ;  Mc- 
Birney  &  Johnston  White  Lead  Co. 
V.  Consolidated  Lead  Co.,  8  Ohio 
Dec.  reprint,  762  (1883)  (Combina- 
tion of  the  white  lead  manufacturers 
of  the  United  States  west  of  Buf- 
falo). 

36 — Chapin  v.  Brown  Bros.,  83 
Iowa  156,  48  N.  W.  1074  (1891) 
[138];  Distilling  &  Cattle  Feeding 
Co.  V.  People,  156  lU.  448,  41  N.  E. 
188  (1895);  Bishop  v.  American 
Preservers'  Co.,  157  111.  284,  41  N. 
E.  765  (1895) ;  Harding  v.  Ameri- 
can Glucose  Co.,  182  lU.  551,  55  N. 
E.  577  (1899). 

37— Judd  V.  Harrington,  139  N. 
Y.  105,  34  N.  E.  790  (1893)  [718]; 
Texas  Standard  Oil  Co.  v.  Adoue, 
83    Tex.    650    (1892);    Hooker    v. 


62 


Ch.  5]  COMBINATIONS  [§68 

record  presented  consisted  of  the  petition,  answer,  and  demurrer 
of  the  state.  This  record  apparently  presented  no  statement  of 
the  fact  that  the  units  combining  in  the  Standard  Oil  Trust  of 
1882  were  competing,  nor  did  it  disclose  what  capital  they  rep- 
resented, or  whether  as  combined  they  occupied  a  preponderant 
position  in  the  industry.  The  court  evidently  took  judicial 
notice  of  these  important  facts.  It  is  clear  that  heretofore  at 
least,  courts  have  not  been  over  particular  about  requiring  records 
which  showed  the  size  and  preponderant  position  of  the  combi- 
nation in  question.  Yet  it  is  not  conceivable  that  these  courts 
were  holding  illegal  every  combination  however  insignificant 
which  eliminated  competition  between  the  units  combined.^^ 
Hence  some  assumptions  about  size  and  preponderant  position 
must  be  made  in  all  cases  where  the  combination  has  been  held 
illegal.  When  such  an  assumption  is  made,  the  courts  are  abso- 
lutely silent  as  to  whether  the  fact  of  size  and  preponderant 
position  is,  in  and  of  itself,  conclusive  of  illegality,  or  merely 
prima  facie  evidence  of  an  excluding  purpose. 

§  68.  (3)  Outside  of  the  decision  of  the  District  Court  in  the 
International  Harvester  case,**'  there  have  been  no  results  and  no 
dicta  which  clearly  announce  the  first  view.  It  must  be  con- 
ceded, however,  that  the  language  of  the  courts  in  a  number  of 
cases,  which  are,  nevertheless,  explainable  on  the  ground  that 
there  was  a  prima  facie  inference  of  excluding  purposes  and 
practices,  sounds  as  if  the  court  regarded  the  mere  elimination 
of  competition  between  the  units  combined  as  illegal  per  se.^^ 
So,  scattered  through  cases  where  there  was  a  clear  purpose  to 
exclude  others  by  illegal  methods  of  competition,*^  or  a  combi- 

Vandewater,  4  Denio   (N.  Y.)    349  Bros.,    63    L.    T.    B.    (N.    S.)    455 

(1847);  De  Witt  Wire-Cloth  Co.  v.  (1890). 

New  Jersey  Wire-Cloth  Co.,  14  N.  38— State  v.  Standard  Oil  Co.,  49 

Y.  Supp.  277   (1891);   Anderson  v.  Ohio  St.  137,  30  N.  E.  279  (1892) 

Jett,   89   Ky.   375    (1889);    Vulcan  [649]. 

Powder  Co.  v.  Hercules  Powder  Co.,  39 — See  cases  ante  §  53,  n.  17, 18. 

96  Cal.  510,  31  Pac.  581    (1892);  40—214   Fed.   987    (1914)    (now 

Ford    V.    Chicago    Milk    Shippers'  i)ending   on   writ    of   error   in   the 

Ass'n,  155  111.  166,  39  N.  E.  651  Supreme     Court     of     the     United 

(1895);    India   Bagging   Ass'n   v.  States). 

Kock    &    Co.,    14    La.    Ann.    168  41 — See  cases  ante  §  65,  n.  35,  36. 

(1859) ;     Urmston     v.     Whitelegg  42 — See  cases  ante  §  49,  n.  6,  7. 

63 


§68] 


THE   COMMON  LAW 


[Ch.5 


nation  of  railroads  or  public  service  corporations  where  the  field 
was  not,  as  a  matter  of  law,  free  to  the  public  to  enter,*^  or  where 
the  problem  here  discussed  was  not  involved,  will  be  found  many 
general  expressions  which  make  it  appear  as  if  the  court  thought 
mere  size  in  any  business  was  inimical  to  the  public  interest.** 


43 — See  cases  ante  §  51,  n.  14. 

44 — People  v.  Chicago  Gas  Trust 
Co.,  130  111.  268,  303,  22  N.  E.  798 
(1889)  [735].  ("We  concur  in  the 
following  views  expressed  by  the 
Supreme  Court  of  Greorgia  in  the 
case  of  Central  E.  E.  Co.  v.  Collins, 
supra,  [40  Ga.  582]:  'AH  experi- 
ence has  shown  that  large  accumu- 
lations of  property  in  hands  likely 
to  keep  it  intact  for  a  long  period 
are  dangerous  to  the  public  weal. 
Having  perpetual  succession,  any 
kind  of  a  corporation  has  peculiar 
facilities  for  such  accumulation,  and 
most  governments  have  found  it 
necessary  to  exercise  great  caution 
in  their  grants  of  corporate  powers. 
Even  religious  corporations  pro- 
fessing, and  in  the  main,  truly, 
nothing  but  the  general  good,  have 
proven  obnoxious  to  this  objection, 
so  that  in  England  it  was  long  ago 
found  necessary  to  restrict  them  in 
their  powers  of  acquiring  real  es- 
tate. Freed  as  such  bodies  are  from 
the  sure  bound  to  the  schemes  of 
individuals, —  the  grave, —  they  are 
able  to  add  field  to  field,  and  power 
to  power,  until  they  become  entirely 
too  strong  for  that  society  which  is 
made  up  of  those  whose  plans  are 
limited  by  a  single  life.'  ") 

Woodberry  v.  McClurg,  78  Miss. 
831,  835,  29  So.  514,  515  (1901). 
(In  holding  an  attempt  at  power  in 
a  corporation  to  purchase  stock  in 
other  corporations  not  competing 
■with  it,  the  court  said:  "That  the 
powers  attempted  to  be  lodged  in 


the  Laurel  Gravel  Company  would 
be  illegal,  if  granted,  we  cannot 
doubt.  They  would  make  it  a  stu- 
pendous monster,  capable  of  swal- 
lowing into  its  insatiable  maw  all 
the  mercantile  and  manufacturing 
institutions  of  the  entire  country, 
because  none  of  them  would  be  in 
any  competition  with  it  in  the  gravel 
business.") 

Eichardson  v.  Buhl,  77  Mich.  632, 
658,  43  N.  W.  1102  (1889).  ("In- 
deed, it  is  doubtful  if  free  govern- 
ment can  long  exist  in  a  country 
where  such  enormous  amounts  of 
money  are  allowed  to  be  accumu- 
lated in  the  vaults  of  corporations, 
to  be  used  at  discretion  in  control- 
ling the  property  and  business  of 
the  country  against  the  interest  of 
the  public  and  that  of  the  people, 
for  the  personal  gain  and  aggran- 
dizement of  a  few  individuals.") 

State  v.  Standard  Oil  Co.,  49 
Ohio  St.  137,  187,  30  N.  E.  279 
(1892)  [649].  ("A  society  in 
which  a  few  men  are  the  employers 
and  the  great  body  are  merely  em- 
ployees or  servants,  is  not  the  most 
desirable  in  a  republic;  and  it 
should  be  as  much  the  policy  of  the 
laws  to  multiply  the  numbers  en- 
gaged in  independent  pursuits  or  in 
the  profits  of  production  as  to 
cheapen  the  price  to  the  consumer. 
Such  policy  would  tend  to  an  equal- 
ity of  fortunes  among  its  citizens, 
thought  to  be  so  desirable  in  a  re- 
public, and  lessen  the  amount  of 
pauperism  and  crime.") 


64 


Ch.5] 


COMBINATIONS 


[§68 


One  reason  for  such  expressions  is  now  fairly  clear.  They  were 
made  for  the  most  part  in  the  '80s  and  '90s.  That  was  a  time 
when  the  process  of  shifting  from  smaller  units  to  larger  and 
still  larger  units  was  carried  on  with  extraordinary  rapidity 
and  persistence.  The  power  which  came  from  the  sudden  com- 
bination was  new  and  uncontrolled  by  those  who  possessed  it. 
It  had  been,  and  was  being,  terribly  abused.    Unlawful  exclud- 


United  States  v.  Trans-Missouri 
Freight  Ass'n,  166  U.  S.  290,  324 
(1896)  [862].  (".  .  .  it  is  not 
for  the  real  prosperity  of  any- 
country  that  such  changes  should 
occur  which  result  in  transferring 
an  independent  business  man,  the 
head  of  his  establishment,  small 
though  it  might  be,  into  a  mere 
servant  or  agent  of  a  corporation 
for  selling  the  commodities  which 
he  once  manufactured  or  dealt  in, 
having  no  voice  in  shaping  the 
business  policy  of  the  company  and 
bound  to  obey  orders  issued  by 
others.") 

Similar  expressions  occurred  in 
the  debate  preceding  the  passage  of 
the  Sherman  Act: 

United  States  v.  Trans-Missouri 
Freight  Ass'n,  166  U.  S.  290,  319 
(1896)  [862].  (The  court,  refer- 
ring to  these  debates,  said: 
"Among  these  trusts  it  was  said  in 
Congress  were  the  Beef  Trust,  the 
Standard  Oil  Trust,  the  Steel  Trust, 
the  Barbed  Fence  Wire  Trust,  the 
Sugar  Trust,  the  Cordage  Trust,  the 
Cotton  Seed  Oil  Trust,  the  Whisky 
Trust  and  many  others,  and  these 
trusts  it  was  stated  had  assumed  an 
importance  and  had  acquired  a 
power  which  were  dangerous  to  the 
whole  country,  and  that  their  exist- 
ence was  directly  antagonistic  to  it8 
peace  and  prosperity." 

Senator     Sherman,    opening    the 

Kales  Sum.  R.  of  T.— 5  65 


debate  upon  the  Sherman  Act,  said 
(21  Cong.  Rec.  2457):  "But  as- 
sociated enterprise  and  capital  are 
not  satisfied  wtih  partnerships  and 
corporations  competing  with  each 
other,  and  have  invented  a  new  form 
of  combination,  commonly  called 
trusts,  that  seeks  to  avoid  competi- 
tion by  combining  the  controlling 
corporations,  partnerships,  and  in- 
dividuals engaged  in  the  same  busi- 
ness, and  placing  the  power  and 
property  of  the  combination  under 
the  government  of  a  few  individuals, 
and  often  under  the  control  of  a 
single  man  called  a  trustee,  a  chair- 
man, or  a  president.     .     .     . 

"Such  a  combination  is  far  more 
dangerous  than  any  heretofore  in- 
vented, and,  when  it  embraces  the 
great  body  of  all  the  corporations 
engaged  in  a  particular  industry  in 
all  of  the  states  of  the  Union,  it 
tends  to  advance  the  price  to  the 
consumer  of  any  article  produced, 
it  is  a  substantial  monopoly  in- 
jurious to  the  public>  and,  by  the 
rule  of  both  the  common  and  civil 
law,  is  null  and  void  and  the  just 
subject  of  restraint  by  the  courts, 
of  forfeiture  of  corporate  rights 
and  privileges,  and  in  some  cases 
should  be  denounced  as  a  crime,  and 
the  individuals  engaged  in  it  should 
be  punished  as  criminals.  It  is  this 
kind  of  a  combination  we  have  to 
deal  with  now." 


§  68]  THE   COMMON  LAW  [Ch.  5 

ing  practices  were  the  regular  accompaniment  of  combinations 
which  occupied  a  preponderant  position  in  the  business.  The 
consequence  was  that  all  such  combinations  received  a  bad  name. 
Combination  was,  in  and  of  itself,  regarded  as  dangerous  and 
contrary  to  the  interests  of  society.  Furthermore,  the  courts 
did  not  at  all  appreciate  that  they  could  draw  a  sharp  line  be- 
tween combinations  which  had  the  excluding  purpose  and  used 
unlawful  excluding  practices  and  those  which  did  not.  They  did 
not  at  all  perceive  that  size  and  preponderant  position  in  the 
business  might  be  made,  in  and  of  itself,  prima  facie  evidence 
of  the  intent  to  exclude  by  the  use  of  unlawful  excluding  prac- 
tices and  thus  require  the  combination  to  meet  that  case  against 
it.  In  the  face  of  the  unlawful  use  of  the  power  of  combinations 
and  the  profound  obscurity  as  to  where  the  line  was  to  be 
drawn  against  them,  it  is  not  to  be  Avondered  at  that  courts,  while 
reaching  sound  results,  should  have  stressed  and  fulminated 
against  combinations  as  such,  and  looked  upon  size  as  something 
inherently  reprehensible.  But  even  so,  it  is  apparent  that  these 
same  courts  made  no  conscious  decision  between  the  rule  that  size 
and  preponderant  position  were,  per  se,  illegal,  and  the  rule 
which  made  them  merely  prima  facie  evidence  of  an  intent  to 
exclude  others  by  unlawful  means.  The  latter  view  is  entirely 
consistent  with  the  fear  of  size  in  combination  though  not  always 
with  the  heat  with  which  that  fear  is  expressed. 

§69.  It  should  be  observed  also  that  the  concession  of  the 
District  Court  in  the  International  Harvester  Case^^  that  "there 
is  no  limit  under  the  American  law  to  which  a  business  may  not 
independently  grow, ' '  is  diflScult  to  reconcile  with  the  proposition 
that  mere  size  and  preponderant  position  is,  in  and  of  itself,  ille- 
gal. It  is  useless  to  insist  that  mere  growth  is  normal  and  com- 
bination abnormal.  Both  are  normal  methods  of  growth.  Com- 
bination is  normal  up  to  a  certain  point  so  long  as  it  is  legal.  No 
advance  is  made  by  saying  it  is  abnormal  because  it  is  illegal, 
when  its  abnormality  is  in  turn  used  to  prove  its  illegality.  If 
size  is  a  menace  in  the  case  of  growth  by  combination  it  is  a  men- 
ace where  there  is  growth  without  combination.  How  the  growth 
may  occur  is  immaterial.     On  the  other  hand,  if  size  and  pre- 

45—214  Fed.  987   (1914). 

66 


Ch.  5]  COMBINATIONS  [§  70 

ponderant  position  in  the  business  are  by  themselves  not  a  test 
of  illegality,  but  only  evidence  of  the  excluding  purpose,  then 
we  may  fairly  make  a  difference  between  independent  and  nor- 
mal growth  (so  called)  and  combination.  The  former  might 
properly  furnish  no  prima  facie  evidence  of  the  excluding  pur- 
pose.   The  latter  would. 

§70.  It  is  generally  assumed  that  an  agreement  between 
competitors,  together  occupying  a  preponderant  position  in  the 
business,  that  they  will  maintain  a  fixed  price  or  a  fixed  mini- 
mum price  at  least,  is  illegal.*^  From  this  it  has  been  argued  that 
a  mere  combination  of  competing  properties  under  one  manage- 
ment without  any  agreement  amounted  to  the  same  thing,  and 
hence  was,  in  and  of  itself,  illegal.^'^  The  fallacy  here  is  twofold. 
It  is  assumed  that  the  fixing  of  the  price  is,  in  and  of  itself,  illegal, 
when  it  may  just  as  well  be  merely  prima  facie  evidence  of  an  as- 
sumption of  the  control  of  the  market,  and  the  purpose  to  exclude 
others.  Indeed,  the  contract  to  maintain  a  certain  price  for  any 
considerable  period  would  hardly  be  sensible  except  upon  these 
assumptions.  But  even  if  price-fixing  agreements  are,  in  and 
of  themselves,  illegal,  it  does  not  follow  that  the  mere  com- 
bination of  the  same  units  is,  in  and  of  itself,  illegal.  The  vice 
of  the  price-fixing  agreement  is  not  merely  the  elimination  of 
competition  between  the  units.  It  is  the  assumption  of  the  fact 
that  the  field  of  the  business  will  not  be  free  to  others  to  enter, 
and  the  necessary  inference  from  such  an  assumption  that  those 
combining  have  control  of  the  market  and  intend  to  use  their 
power  to  keep  it.     This  may  be  so  clear  from  the  actual  agree- 

46 — ^Unnston  v,  Whitelegg  Bros.,  maJce  a  legal  contract  as  to  prices 

63  L.  T.  R.  (N.  S.)  455  (1890).    It  or    as    to    collateral    services    they 

should  be  observed  that  it  is  diflS-  could  not  legally  unite,  and  as  the 

cult  to  find  cases  of  this  sort,  for  companies  named  did  in  effeet  unite 

the  reason  that   most   of   the  con-  the  sole  question  is  as  to  whether 

tracts    provide    for    the    fixing    of  they  would  have   agreed  on  prices 

prices  from  time  to  time  by  a  cen-  and    what    collateral    services    they 

tral  authority.  could  render,  when  their  companies 

47 — Opinion   of  the  majority  of  were  all  prosperous  and  they  jointly 

the  District  Court  in  United  States  controlled  eighty  to  eighty-five  per 

V.  International  Harvester  Co.,  214  cent  of  the  business  in  that  line  in 

Ted.  987,  999  (1914).     ("We  thinle  the  United  States.     We  think  they 

it  may  he  laid  down  as  a  general  could  not  have  made  such  an  agree- 

rule   that   if   companies   could   not  ment. "    Italics  ours.) 

67 


§  70]  THE   COMMON  LAW  [Ch.  5 

ment  that  it  is  eonclusive.  When,  however,  the  units  combine 
without  any  agreement,  the  size  and  preponderant  position  of  the 
combination  in  the  business  may  be  such  as,  prima  facie  to  raise 
the  inference  that  there  is  a  purpose  to  exclude  others  and  to 
use  excluding  practices.  But  there  is  nothing  in  any  solemn 
agreement  of  the  parties  which  in  so  many  words  declares  that 
pui'pose.    Hence  the  inference  is  rebuttable, 

§  71.  The  Dr.  Miles  Medical  Co.  Case  ^^  clearly  goes  upon  the 
ground  that  there  was  involved  a  combination  of  the  manufac- 
turer and  distributing  retailers  which  eliminated  all  competition 
between  the  retailers  and  maintained  retail  prices  by  agreement. 
It  made  no  difference  that  the  agreements  which  effected  these 
objects  were  between  the  manufacturer  and  the  retailers.  The 
result  was  the  same  as  if  they  had  been  between  the  retailers 
themselves.  The  combination  by  agreement,  therefore,  assumed 
a  command  of  the  market,  so  far  as  the  articles  sold  were  con- 
cerned, and  the  fixing  of  prices  assumed  that,  with  the  aid  of  the 
manufacturer,  all  others  could  be  excluded  from  the  retail  busi- 
ness, and  all  competition  between  the  retailers  in  the  combina- 
tion suppressed.  The  holding  of  such  a  scheme  illegal,  whether 
rightly  or  wrongly,^^  does  not  in  the  least  support  the  general 
proposition  that  mere  elimination  of  competition  by  combining 
properties  under  a  new  management,  or  combining  properties 
and  managers  in  a  new  industrial  unit  is,  in  and  of  itself,  illegal. 
This  is  clear,  because  the  court  itself  tacitly  conceded  the  point 
made  by  Mr.  Justice  Holmes  in  his  dissenting  opinion  that  if 
title  to  the  goods  did  not  pass,  and  the  retailers  were  mere  agents 
of  the  manufacturer,  the  same  restrictions  as  to  price  would  be 
'valid.^*^  But  that  would  have  been  just  as  much  an  elimination 
of  competition  between  retailers  as  existed  already,  and  if  such 

48 — ^Dr.    Miles    Medical    Co.     v.  with  a  restraint  as  to  tlie  selling 

Park   &    Sons   Co.,   220    U.    S.    373  price.    The  restraint  was  held  void 

(1911)    [838].  because  the  license  was,  under  all 

49 — Ante  §§  31-39.  the  circumstances,  a  mere  subter- 

50 — Nor    is    this    position    •weak-  fuge  for  a  sale.    But  an  agency  to 

ened    by    the    recent    decision    in  distribute  a  manufacturer's  goods 

Straus   V.   Victor   Talking   Machine  may  be   a  reality,  and  if  so   the 

Co.,   243    U.    S.   490    (1917).     The  principal  may  certainly  control  the 

licenses     there     involved     provided  price    at    which    his    distributing 

for  the  use  of  a  patented  article  agent  shall  sell. 

68 


Ch.  5]  COMBINATIONS  [§  72 

an  elimination  of  competition  be  illegal  per  se,  the  form  would  be 
immaterial.  It  is  clear,  therefore,  that  the  illegality  of  the  com- 
bination in  question  arose  from  the  price-fixing  arrangement  and 
a  control  of  the  market  by  excluding  others  which  it  was  sup- 
posed such  an  arrangement  assumed,  and  not  merely  from  the 
elimination  of  competition  between  the  retailers. 

§  72.  (4)  It  is  important  to  observe  that  in  drawing  the  line 
between  good  and  bad  labor  organizations,  the  courts  have  been 
quick  to  approve  combinations  among  labor  units  no  matter  what 
the  size  or  preponderant  position  of  the  union  may  be,  up  to  the 
point  where  the  combination  has  unlawful  and  excluding  pur- 
poses or  indulges  in  unlawful  excluding  practices,  so  that  the 
labor  market  is  no  longer  free  to  other  labor  units  or  to  em- 
ployers. Every  labor  union  eliminates  competition  between  the 
units  combined,  and  while  there  may  be  no  agreement  as  to  price, 
they  all  have  the  purpose  to  secure  as  high  wages  as  possible. 
They  are  not,  however,  illegal  for  that  reason.^  ^  The  interest  of 
society  in  the  freedom  of  men  to  combine  to  better  their  situa- 
tion by  eliminating  too  much  competition  and  the  doing  of 
business  by  larger  collective  units  overcomes  any  interest  of  the 
public  in  having  unrestricted  competition  among  labor  units. 
But  let  the  labor  union  acquire  the  purpose  of  excluding  all 
others  except  its  members  from  the  labor  market,  or  let  the  union 
commence  unlawful  or  unfair  excluding  practices  and  methods  so 
as  to  make  the  labor  market  unfree,  and  the  organization  becomes 
illegal  at  common  law,^^  ^nd,  if  interstate  commerce  is  involved, 
under  the  Sherman  Act.  That  is  the  only  line  attempted.  No 
court  has  suggested  that  the  mere  size  of  a  union  or  its  prepon- 
derant position  in  the  labor  market  makes  it,  per  se,  illegal.  It 
has  not  even  been  suggested  that  size  and  preponderant  position 
is  prima  facie  evidence  of  an  intent  to  exclude  others  or  to  in- 
dulge in  excluding  practices.     This  is  significant  because  such 

51— The       Master       Stevedores'  Hornby  v.  Close,  L.  B.  2  Q.  B.  153 

Ass'n  V.  WaJsh,  2  Daly  (N.  Y.)   1  (1867)     [278],   not   followed.      See 

(1867)     [388];    Snow    v.    Wheeler,  Collins  v.  Locke,  L.  B.  4  A.  C.  674 

113     Mass.     179      (1873)      [400];  (1879)   [298]. 

Thomas  v.  Cincinnati,  N.  0.  &  T.  P.  52— People   v.   Fisher,   14  Wend. 

Ry.  Co.,  62  Fed.  863   (1894)    [407]  (N.  Y.)  9  (1835). 
(per  Taft,  Circuit  Judge) ;   contra, 

69 


§72]  THE   COMMON  LAW  [Ch.  5 

excluding  purposes  and  practices  are  quite  as  likely  to  follow 
from  the  acquisition  by  a  union  of  a  preponderant  position  in  a 
given  labor  market  as  they  are  from  the  acquisition  of  a  similar 
position  in  industry  by  the  owners  or  managers  of  combined 
properties.  More  than  one  court  has  noted  that,  so  far  as  the 
legality  of  combinations  is  concerned,  combinations  of  property, 
or  property  and  managers,  are  on  the  same  footing  as  combina- 
tions of  labor  units.^^  No  difference  has  been  pointed  out  by 
anyone.  If  there  is  any  difference  based  upon  the  different  stand- 
ing of  labor  units  to  unite  and  managing  units  controlling  prop- 
erty to  unite,  it  would  be  entirely  satisfied  by  permitting  the 
labor  units  to  combine  to  any  extent  without  such  combination 
giving  rise  to  any  prima  facie  inference  of  an  intent  to  exclude 
others,  while,  at  the  same  time,  a  combination  of  managing  and 
property  units  occupying  a  preponderant  position  in  the  business, 
would  necessarily  give  rise  to  such  a  prima  facie  inference  and 
must  sustain  the  burden  of  meeting  the  case  so  made  against  it. 
§  73.  (5)  Our  view  of  the  state  of  the  authorities  should  not 
be  concluded  without  considering  the  relation  between  a  certain 
class  of  cases  arising  under  the  "due  process"  clause  and  under 
the  Sherman  Act.  Suppose  in  cases  where  the  question  is  whether 
an  act  of  the  legislature  is  "due  process"  which  interferes  with 
the  management  of  business  by  prescribing  hours  of  labor  or 
methods  of  payment  of  wages  or  the  amount  of  wages,  four 
judges  out  of  nine  are  clear  that  the  fundamentals  of  the  social 
order  are  in  jeopardy,  and  the  act  must  be  set  aside.  "When  these 
same  judges  come  to  draft  or  approve  a  judicial  rule  proscribing 
business  organizations  as  illegal,  they  would  consistently  with 
their  views  on  "due  process"  be  inclined  to  impose  only  such 
restraint  as  seemed  clearly  to  be  called  for  to  meet  an  undoubted 

53 — Queen  Ins.  Co.  v.   State  of  business,  agreements  among  laborers 

Texas,  86  Tex.  250,  271,  24  S.  W.  and  among  professional  men  not  to 

397    (1893)     [605].      ("It   follows,  render   services   below   a   stipulated 

therefore,    that    if    insurance    com-  rate  should  be  held  contrary  to  pub- 

panies  are  to  be  brought  within  the  lie  policy  and  void  upon  the  same 

rule  that  makes  agreements  to  in-  ground");      Sayre     v.      Louisville 

crease    the    price    of    merchandise  Union   Benevolent  Ass'n,   1   Duvall 

illegal,   upon   the    ground   that   the  (Ky.)  143  (1863)    (semble). 
public    have    an    interest    in    their 

70 


Ch.  5]  COMBINATIONS  [  §  74 

evil — ^having  in  mind  always  the  limits  of  such  a  judicial  prohi- 
bition, and  the  avoidance  of  any  rule  founded  upon  doubtful  or 
speculative  economic  data  or  results.  Such  judges  might  be  ex- 
pected to  adopt  as  the  test  of  illegality  the  existence  of  the 
excluding  purposes  or  illegal  excluding  practices.  Suppose  in 
the  same  "due  process"  cases  five  judges  are  inclined  to  sustain 
the  act.  Three  go  upon  a  social  bias  in  favor  of  the  legislative 
restriction  upon  business.  That  is,  upon  balancing  the  interests, 
they  regard  the  restriction  upon  business  as  for  the  general  wel- 
fare. Two,  however,  if  they  exercised  independent  judgment  in 
balancing  the  interests,  would  have  regarded  the  legislation  as 
opposed  to  the  general  welfare  and  inimical  to  the  social  order 
in  accordance  with  the  views  of  the  minority.  But  they  have 
felt  bound  to  sustain  the  act  in  accordance  with  the  rule  that  it 
must  be  upheld  if  any  rational  basis  for  it  can  be  found  after 
resolving  all  doubts  in  favor  of  the  act.  The  moment  these  two 
come  to  consider  the  test  of  legality  of  business  organizations 
they  are  released  at  once  from  the  obligation  of  sustaining  any- 
thing, if  a  rational  basis  can  be  found  for  it.  With  regard  to  a 
judge-made  rule  prohibiting  certain  business  organizations,  they 
are  not  only  free  to  balance  the  interests  for  and  against  the  pro- 
hibition involved,  but  they  are  subject  to  a  counsel  of  caution 
that,  when  in  doubt,  they  shall  not  extend  the  prohibition,  but 
restrict  it  to  cover  only  that  generality  of  situations  where  the 
public  interest  is  indubitably  affected  unfavorably. 

Economic  Effect  of  Mere  Size 

§74.  In  1911  Mr.  Brandeis  in  testifying  before  the  Senate 

Committee,^*  said:^^ 

"Tou  may  have  an  organization  in  the  community  which  is  so  power- 
ful that  in  a  particular  branch  of  the  trade  it  may  dominate  by  mere 
size.  Although  its  individual  practices  may  be  according  to  rules,  it 
may  be,  nevertheless,  a  menace  to  the  community;     .    .    ." 

54 — ^Reference  is  here  and  in  sue-  on  December  14,  15,  16,  1911.    Mr. 

ceeding    paragraphs    made    to    the  Brandeis     is     referred     to     in     the 

testimony  of  Louis  D.  Brandeis  be-  capacity  in  which  he  testified, 
fore   the    Committee    on    Interstate  55 — Report     of     hearing     before 

Commerce    of    the    United    States  Senate     Committee     on     Interstate 

Senate,  62d  Congress.    It  was  given  Commerce,  supra,  1146. 

71 


§74]  THE   COMMON  LAW  [Ch.5 

Mr.  Brandeis'  experience  and  authority  have  been  so  great,  and 
his  views  before  the  Senate  Committee  are  expressed  so  fully  and 
frankly,  that  it  is  worth  considerable  trouble  to  ascertain  just 
what  were  the  grounds  for  this  opinion,  and  how  far  they  may 
require  a  holding  by  a  court  that  mere  size  is,  in  and  of  itself, 
illegal,  rather  than  prima  facie  evidence  of  illegal  excluding 
purposes  and  practices. 

§75.  (1)  It  is  clear  from  Mr.  Brandeis'  testimony  that  he 
does  not  condemn  mere  size  because  it,  in  and  of  itself  alone, 
tends  to  exclude  others  from  the  business.  The  main  thesis  of 
his  testimony  is  that  size — and  he  is  referring  particularly  to  the 
size  of  our  so-called  American  trusts — results  in  such  economic 
inefficiency  that  without  any  excluding  practices  and  purposes 
they  must  fail,  or  at  least  lose  their  relative  position  in  the  mar- 
ket by  reason  of  successful  competition  carried  on  by  smaller 
and  more  efficient  units.  His  language  to  this  effect  is  so  strong 
and  to  the  point  that  it  should  be  read.  After  setting  out  the 
records  of  certain  trusts,^^  he  says: 

"I  believe  that  the  existing  trusts  have  acquired  the  position  which 
they  hold  largely  through  methods  which  are  in  and  of  themselves  repre- 

56 — ^Report  of  hearing  before  the  Trust   was   worse.      Consider   other 

Senate     Committee     on     Interstate  trusts  now  existing,  the  Print  Papers 

Commerce,    supra,     1148:     ."Now,  Trust      (the     International     Paper 

that  mere  size  does  not  bring  eflS.-  Co.) ;  the  Writing-Paper  Trust  (the 

ciency,  does  not  produce  success,  ap-  American  Writing-Paper  Co.)  ;    the 

pears  very  clearly  when  you  examine  Upper  Leather  Trust  (the  American 

the  records  of  the  trusts.  Hide   &    Leather    Co.) ;    the    Union 

"In  the  first  place,  most  of  the  Bag  Trust,  the  Sole  Leather  Trust; 

trusts     which     did     not     secure    a  those    trusts    and    a    great   number 

domination    of    the    industry — that  of   others   which    did   not  attain   a 

is,  the  trusts  that  had  the  quality  monopoly    and    were    therefore   un- 

of  size,  but  lacked  the  position  of  able    to    fix    prices    have    had    but 

control  of  the  industry,  lacked  the  slight    success    as    compared    with 

ability  to  control  prices — have  either  their    competitors.      You    will    find 

failed    or    have    shown    no    marked  daily  evidence  of  their  lack  of  suc- 

success.     The  record  of  the  unsuc-  cess    in    market    quotations    of    the 

cessful    trusts    is    doubtless    in    all  common     stock,     where     they     are 

your  minds.    One  of  the  earliest  of  quoted    at    all,    and    the    common 

the  trusts  which  did  not  secure  con-  stock  of  some  has  even  fallen  be- 

trol  was  the  Whisky  Trust.     It  was  low  the  horizon  of  a  quotation, 

not  successful.     The  plight  of  the  "Now  take,  in  the  second  place. 

Cordage  Trust  and  of  the  Malting  the  trusts  that  have  been  markedly 

72 


Ch.5] 


COMBINATIONS 


[§75 


hensible.  I  mean  either  through  methods  which  are  abuses  of  competi- 
tion or  by  such  methods  as  were  pursued  by  the  steel  corporation  in  pay- 
ing ridiculous  values  for  property  for  the  purpose  of  monopolistic  control. 


successful,  like  the  Standard  Oil 
Trust,  the  Shoe  Machinery  Trust, 
the  Tobacco  Trust.  They  have  suc- 
ceeded through  their  monopolistic 
position.  They  dominated  the  trade 
and  were  able  to  fix  the  prices  at 
which  articles  should  be  sold.  To 
this  monopolistic  power,  in  the 
main,  and  not  to  efficiency  in  man- 
agement, are  their  great  profits  to 
be  ascribed. 

"Leaving  the  realm  of  industry 
for  that  of  transportation,  compare 
the  failure  of  Mr.  J.  P.  Morgan's 
creation — ^the  International  Mer- 
cantile Marine — and  the  astonishing 
success  of  the  Pullman  Car  Co.  The 
transatlantic  steamship  trade  was 
open  to  competition,  and  could  not, 
in  spite  of  its  price  agreements,  fix 
rates  at  an  elevation  sufficient  to  be 
remunerative.  The  Pullman  Co., 
possessing  an  absolute  monopoly, 
has  made  profits  so  large  as  to  be 
deemed  unconscionable. 

'  *  In  the  third  place,  take  the  class 
of  cases  where  the  trust  has  not 
controlled  the  market  alone,  but  ex- 
erted control  only  through  virtue  of 
price  agreements  or  understandings, 
as  did  the  Sugar  Trust  and  the  Steel 
Trust.  Those  trusts  paid  large  divi- 
dends, because  they  were  able  to  fix 
remunerative  prices  for  the  product. 
But  neither  the  Sugar  Trust  nor  the 
Steel  Trust  has  been  able  to  hold 
its  own  against  its  competitors. 

**Take  it  in  the  Sugar  Trust. 
At  the  time  of  the  Knight  Case,  a 
little  less  than  twenty  years  ago, 
the  Sugar  Trust  had  practically  the 
whole  business  of  the  country — I 
think    the    supreme    court    report 


shows  something  like  95  per  cent. 
The  company's  reports  to  the  stock- 
holders of  1910,  as  I  recaU  it,  show 
that  the  company  now  controls  only 
42  per  cent  of  the  production  of 
the  country. 

"The  price  agreements  or  under- 
standings between  the  trust  and  its 
competitors  had  maintained  the 
price,  but  they  could  not  maintain 
for  the  trust  its  proportion  of  the 
business.  The  Sugar  Trust's  profits 
were  maintained,  as  you  so  well 
know,  not  only  through  the  price 
agreements,  but  through  methods 
that  were  vulgarly  criminal  — 
through  false  weighing;  through 
stealing  of  city  water;  through  ex- 
tensive railroad  rebating. 

"Then  take  the  Steel  Trust- 
that  is  a  younger  trust,  only  half 
the  length  of  life  of  the  Sugar 
Trust.  But  in  the  Steel  Trust  you 
have  a  similar  manifestation  of 
ebbing  prestige.  In  spite  of  all 
this  extraordinary  power  in  the 
Steel  Trust,  the  control  of  raw  ma- 
terial, the  control  of  transporta- 
tion, the  control  of  certain  trade 
through  its  railroad  associations, 
the  control  of  other  trade  through 
its  money  power — and  the  addition 
of  the  Tennessee  Coal  &  Iron  Co. — 
in  spite  of  all  this  the  Steel  Trust 
has  been  a  steady  loser  in  per- 
centage of  the  iron  and  steel  busi- 
ness of  this  country.  And  hot  only 
has  it  been  a  steady  loser  in  the 
percentage  of  business  in  this 
country,  but  despite  its  ability  to 
largely  maintain  prices,  notably  of 
steel  rails,  throughout  that  period, 
the  later  years  show  a  diminishing 


73 


§75]  THE  COMMON  LAW  [Ch.5 

'  *  I  am  so  firmly  convinced  that  the  large  unit  is  not  as  efficient — ^I  mean 
the  very  large  unit — is  not  as  efficient  as  the  smaller  unit,  that  I  believe 
if  it  were  possible  today  to  make  the  corporatums  act  in  accordance  ivith 
what  doubtless  all  of  iis  would  agree  should  be  the  rules  of  trade  no  huge 
corporation  would  be  created,  or,  if  created,  would  be  successful.  I  do  not 
mean  by  that  to  say  that  it  is  not  good  to  have  the  limitation  [on  size]  in  the 
law.  What  I  mean  is  that  I  am  so  convinced  of  the  economic  fallacy  in  the 
huge  unit  that  if  we  make  competition  possible,  if  we  create  conditions 
where  there  could  be  reasonable  competition,  that  these  monsters  would 
fall  to  the  ground,  that  1  do  not  consider  the  need  of  such  a  limitation 
vrgent."  67 

It  is  quite  obvious  that  the  so-called  trust  cannot  at  the  same 
time  exclude  others  because  of  its  size,  and  fail  or  decline  by- 
reason  of  the  successful  competition  of  others  for  the  same  reason. 
It  cannot  be  that  mere  size  alone  tends  to  exclude  others,  and 
that  size  results  in  such  inefficiency  that  others  are  able  to  enter 
the  business  easily  and  compete  successfully.  One  or  the  other 
of  these  results  must  be  discarded  on  the  ground  of  inconsistency. 
As  Mr.  Brandeis'  main  thesis  was  that  size  breeds  inefficiency  and 
failure  in  the  competitive  struggle,  it  is  fair  to  say  that  he  does 
not  place  the  *  *  menace ' '  of  the  trust  which  has  no  excluding  pur- 
poses, and  uses  no  excluding  practices,  upon  the  fact  that  mere 
size  alone  tends  to  exclude  others.  He  would  not  argue  that  it 
was  the  usual  effect  of  mere  size  to  ' '  overawe ' '  the  smaller  com- 
petitor,^^  or  to  "make  men  hesitate  to  enter  the  field  against  it," 
or  **to  prevent  the  entrance  of  new  capital  and  new  competition 
into  the  industry. ' '  ^^ 

§  76.  (2)  It  has  been  urged  that  if  five  plants  are  supplying 
a  given  trade,  the  union  of  those  plants  tends  to  exclude  others, 
because  there  will  be  no  chance  for  anyone  else  to  supply  a  de- 
mand which  is  already  being  adequately  served.^ <>    This  exhibits 

return  upon  the  capital  invested  as  preme  Court  of  the  United  States), 

compared  with  the  earlier  years  of  88. 

the  trust."  59— Ibid. 

57 — Eeport  of  hearing  before  the  60 — Senator     Sherman's     speech, 

Senate     Committee     on     Interstate  opening  the  debate  on  the  Sherman 

Commerce,     supra,     1170.      Italics  Anti-Trust  Act,  21  Cong.  Rec.  2460. 

ours.  ("But,    they    say,    competition    is 

58 — ^Brief  of  Government  in  In-  open  to  all;  if  you  do  not  like  our 

ternational  Harvester  Co.  v.  United  prices,    establish    another    combina- 

States    (now    pending   in    the    Su-  tion  or  trust.     As  was  said  by  the 

74 


Ch.  5]  COMBINATIONS  [§77 

a  child-like  power  of  reasoning  as  to  economic  effect.  Mr.  Bran- 
deis,  of  course,  made  no  such  point.  His  main  thesis,  that  size 
was  so  inconsistent  with  efficiency  that  a  trust  without  any  ex- 
cluding purposes  or  practices  was  an  easy  mark  for  independent 
competition  is  utterly  inconsistent  with  the  contention  that  when 
all  the  units  in  a  given  business  have  combined,  there  is  no  room 
for  anyone  else. 

§  77.  (3)  Mr.  Brandeis  does  suggest  ^^  that  "the  mere  power 
of  endurance  of  the  large  company  would  be  sufficient  to  give  it 
mastery  of  the  field."  He  was  speaking  at  the  time  of  the 
tobacco  trust.    The  context  is  as  follows : 

"I  found,  for  instance,  in  the  tobacco  company  this  situation — and  it 
was  one  of  the  many  objections  to  the  plan  of  so-called  disintegration — 
that  the  American  Tobacco  Co.  in  various  departments  were  controlling 
about  40  per  cent  or  over  of  the  American  business.  We  found  there  that 
in  this  way  the  American  Tobacco  Co.  alone,  and  each  one  of  the  other 
two  large  companies,  would  control  a  proportion  of  the  total  business 
of  the  country  in  certain  departments  of  the  trade  which  was  from  one 
to  seven  times  the  aggregate  of  the  business  of  all  of  the  independents. 
Now,  I  believe  that  fair  competition  is  not  possible  under  those  con- 
ditions, because  the  mere  power  of  endurance  of  the  large  company 
would  be  sufficient  to  give  it  mastery  of  the  field." 

The  purport  of  this  is  somewhat  vague.  If  excluding  practices 
are  used,  or  if  from  the  mere  size  of  the  tobacco  company  units 
which  were  provided  for  in  the  disintegration  plan  referred  to, 
there  was  still  a  prima  facie  inference  that  excluding  practices 
would  be  used,  then  of  course  the  "trust"  would  have  a  "power 
of  endurance"  which  would  keep  out  its  competitors,  and  give  it 
a  mastery  of  the  field.  This  is  probably  Mr.  Brandeis'  meaning, 
for  his  main  thesis  is  that  mere  size  without  excluding  purposes 
or  practices  is  a  source  of  economic  weakness  and  operates  to 
give  competitors  an  advantage  based  on  efficiency.  This  is  en- 
tirely inconsistent  with  the  view  that  mere  size  produces  any  mas- 
tery of  the  field.    Others,  however,  may  insist  that  the  resources 

Supreme  Court  of  New  York  [People  61 — Eeport  of  hearing  before  the 

V.  North  River  Sugar  Refining  Co.,  Senate     Committee     on     Interstate 

54  Hun    (N.  Y.)    354,  377],  when  Commerce,  supra,  1175.  Italics  ours, 
the  combination  already  includes  all 
or  nearly   all  the  producers,   what 
room  ia  there  for  another?") 

75 


§  77]  THE  COMMON  LAW  [Ch.  5 

of  a  so-called  trust  are  so  great  that  the  combination  could  prac- 
tice universal  price-cutting-  below  cost  in  order  to  destroy  all 
rivals  and  exclude  others.  The  reserves,  however,  of  such  an 
organization  are  not  necessarily  proportionately  larger  than  those 
of  smaller  units.  It  may  fairly  be  denied  that  there  are  any  such 
resources  in  the  hands  of  a  so-called  trust  as  will  enable  it  to  keep 
up  universal  price-cutting  below  cost  on  a  country-wide  basis 
longer  than  a  smaler  unit  can  keep  up  the  same  price-cutting  in 
the  smaller  field  where  it  operates.  Of  course,  no  court  can  deal 
with  the  question  of  legality  on  the  fortuitous  basis  of  what  pro- 
portion of  reserve  capital  one  corporation  may  have  in  comparison 
with  that  of  its  rival  or  possible  rival.  Even  if  one  could  imagine 
a  trust  punishing  itself  by  universal  price-cutting  to  the  extent 
assumed,  how  is  the  public  injured  1  Surely  not  by  the  introduc- 
tion of  prices  so  low  that  no  one  cares  to  enter  the  business  or 
to  stay  in  the  business  and  the  retention  of  such  prices  in  general 
whenever  any  competitor  appeared  in  any  part-  of  the  country. 

§  78.  (4)  Perhaps  it  will  be  said  that  the  large  combination 
will  absorb  all  the  best  talent  in  the  community  for  the  business, 
and  so  make  competition  impossible.  This  position,  however,  is 
equally  inconsistent  with  Mr.  Brandeis'  main  thesis.  If  such 
were  the  fact,  then  the  "trusts"  would  not  fail  for  ineificiency 
or  be  subject  to  successful  competition  from  new  capital.  Fur- 
thermore, there  will  still  be  infinite  dispute  as  to  whether  the 
"trust"  does,  in  fact,  secure  the  best  talent.  If  the  subject  were 
investigated  able  men  could  no  doubt  be  found  to  testify  that 
the  more  progressive  and  inventive  minds  arise  among  the  inde- 
pendent smaller  units,  and  that  the  large  unit  tends  to  conserva- 
tive methods,  lack  of  initiative,  and  want  of  inventive  power — 
indeed,  that  it  is  subject  to  all  the  evils  of  a  bureaucracy.  For 
instance,  between  the  independent  telephone  engineers  and  in- 
ventors and  the  engineers  and  inventors  of  the  Bell  system  will 
be  found  a  long  standing  dispute  as  to  the  merits  and  abilities 
of  the  men  in  each  group.  Furthermore,  it  may  well  be  doubted 
whether  efficiency  and  experience  can  be  regarded  as  limited  to 
any  such  degree  that  it  can  be  "cornered."  ^^ 

62 — Thus  Mr.  Justice  Day,  sitting  appeals  in  the  Cash  Eegister  Case, 
as  a  Justice  in  the  circuit  court  of      222  Fed.  SQd,  619  (1915),  observed 

76 


Ch.  5J  COMBINATIONS  [§80 

§79.  (5)  Combination  resulting  in  a  unit  occupying  a  pre- 
ponderant position  in  the  business  has  been  objected  to  because 
it  tends  unduly  to  enhance  prices.  The  idea  is  that  there  is  a 
necessary  connection  between  size  and  high  prices.  This  rests, 
of  course,  upon  the  belief  that  there  is  a  necessary  connection 
between  mere  size  (without  any  excluding  purposes  or  prac- 
tices) and  the  exclusion  of  others  from  the  business.  When  the 
latter  is  exploded,  does  anything  remain  of  the  former?  Any 
idea  that  there  is  a  necessary  connection  must  certainly  be  aban- 
doned. It  is  significant  that  when  Mr.  Brandeis  was  asked 
whether  he  would  regard  15  per  cent  return  on  $10,000,000  of 
capital  an  extortionate  profit,  he  not  only  refused  any  percentage 
as  a  test  of  fair  profit,  but  plainly  indicated  that  the  only  test  of 
extortionate  prices  which  he  had  in  mind  was  the  fact  that  the 
market  was  unfree; — in  short,  that  the  unit  fixing  the  prices 
had  the  excluding  purpose  and  used  unlawful  excluding  prac- 
tices.   He  said :  ^^    [Italics  ours] 

"In  a  business  which  is  a  competitive  business,  I  believe  we  can  safely 
leave  the  percentage  of  profit  to  that  which  the  business  will  bear,  and  I 
think  it  is  in  the  interest  of  business  and  the  interest  of  the  community  to 
let  people  who  are  conducting  business  which  is  competitive  understand  that 
there  is  no  profit  too  great  to  be  approved,  if  it  is  the  result  of  the  exercise 
of  brains  and  character,  under  conditions  of  industrial  liberty.  I  think  we 
want  to  let  people  understand  that  it  is  not  15  or  20  or  30  or  100  per  cent 
that  we  condemn.  We  ought  to  congratulate  people  in  making  that  much, 
and  we  ought  to  congratulate  ourselves  that  they  are  making  it,  if  it  is  made 
under  conditions  of  natural  competition.  And  it  is  only  when  conditions 
are  constrained  that  wei  have  any  interest  in  how  large  returns  are  made. ' ' 

§  80.  (6)  The  difficulty  in  determining  what  size  is  illegal  is 
a  strong  argument  against  making  size,  in  and  of  itself,  a  judicial 
test  of  illegality.  Whether  the  unit  attacked  occupies  a  preponder- 
ant position  in  the  business  may  possibly  be  ascertained  like  other 
ultimate  facts  to  which  legal  consequences  attach.  But  in  many 
eases  it  certainly  cannot  be  known  in  advance.  It  will  depend  upon 
the  conditions  of  each  business  and  upon  surrounding  eircum- 

that     "possibly,     efficiency     is    so  63 — Report  of  hearing  before  the 

abundant  that   in   experience  there  Senate     Committee     on     Interstate 

never   will   be   as   there   never   has  Commercei   1245. 
been  such  a  monopolizing.'' 

77 


§  80]  THE   COMMON  LAW  [Ch.  5 

stances  of  an  intricate  and  changing  character.  It  may  be  that 
in  one  industry  a  single  unit  doing  25  per  cent  of  the  business 
might  occupy  a  preponderant  position,  while  in  another,  one  with 
40  per  cent  might  not.  When  asked  by  the  Senate  committee 
what  limit  he  would  place  on  the  size  of  corporations,  what 
standard  he  would  fix,  and  how  he  would  phrase  it,  Mr.  Braudeis 
said ;  6* 

"I  do  not  think  that  I  am  able  at  this  time  to  state  the  exact  provision 
which  I  should  make.  I  feel  very  clear  on  the  proposition,  but  I  do  not  feel 
equally  clear  as  to  what  machinery  should  be  invoked  or  the  specific  provision 
by  which  that  proposition  could  be  enforced." 

Then  he  goes  on  to  say :  ^^ 

"I  am  very  clear  that  the  maximum  limit  could  not  be  properly  fixed 
in  dollars,  because  what  would  be  just  enough  for  one  business  would  be 
far  too  much  for  many  others." 

Apparently  he  favored  some  standard  which  took  account  of  the 
percentage  of  the  market  controlled.  But  even  here  he  was  vague 
as  to  what  percentage  would  be  illegal.  He  was  clear  that  10  per 
cent  would  be  legal,  but  that  40  per  cent  might  not.*'^  Mr.  Bran- 
deis'  difficulties  in  dealing  with  the  standard  of  size  for  business 
and  industrial  units  where  the  power  of  the  legislature  was  in- 
volved, are  surely  not  diminished  where  the  power  of  the  court 
is  invoked.  The  difficulty  is  not  solved  by  being  embalmed  in 
any  such  phrase  as  "preponderant  position  in  the  business."  It 
is  clear  that  whether  a  business  occupies  such  a  position  is  a  good 
deal  like  determining  whether  anyone  has  been  guilty  of  negli- 
gence. No  one  can  tell  what  the  legal  consequences  of  acts  may 
be  until  the  trial  is  had,  and  the  courts  are  through.  Can  the 
control  of  property  engaged  in  industrial  and  commercial  pur- 
suits and  operating  in  a  delicately  adjusted  field  from  day  to 
day  stand  being  faced  at  all  times  with  such  a  test  of  legality  ? 
If  such  a  test  were  adopted,  the  motive  to  err  on  the  safe  side 
in  order  to  avoid  indictment  might  so  impede  the  shift  from 

64— I6i^.,  1174.  QG—Ibid.,  1175. 

65 — ^Report  of  hearing  before  the 
Senate  Committee  on  Interstate 
Commerce,  supra,  1175. 

78 


Ch.  5]  COMBINATIONS  [§  82 

smaller  to  larger  units  as  to  result  in  positive  public  evil.  Where 
the  violation  of  a  highly  penal  statute  like  the  Sherman  Act  is 
involved,  is  it  fair  to  subject  business  men  to  indictment  for 
crime  upon  an  issue  which  involved  merely  the  size  of  the  busi- 
ness which  they  went  into  together  ? 

§  81.  The  courts  have  had  at  least  one  unfortunate  experience 
in  making  property  rights  depend  upon  a  question  of  size.  When 
a  non-exclusive  power  was  created  in  A  to  appoint  among  a  class 
with  a  gift  in  default  of  appointment  to  the  class,  A  must  ap- 
point something  to  each  one.  If  A  appointed  too  small  an  amount 
to  one,  it  was  treated  in  a  court  of  equity  as  no  appointment  at 
all.  It  was  called  an  illusory  appointment.  This  was  a  very 
pretty  doctrine  sentimentally,  but  it  made  litigation  every  time 
any  appointee  got  a  considerable  amount  less  than  the  others, 
and  no  test  of  what  was  a  substantial  appointment  could  ever  be 
worked  out.  It  always  depended  on  the  size  and  character  of  the 
estate  and  surrounding  circumstances.  The  doctrine  was  spoken 
of  with  contempt  by  judges  and  writers  who  had  had  any  expe- 
rience with  it,  and  was  finally  abolished  by  act  of  Parliament.^'' 
In  this  country  courts  have  refused  to  recognize  it.''^  There  are 
the  same  fundamental  objections  (many  times  magnified)  against 
putting  the  validity  of  great  business  organizations  upon  any 
test  of  size  alone. 

§  82.  It  will  be  said,  however,  that  if  the  line  as  to  size  can 
be  drawn  for  the  purpose  of  determining  what  is  prima  facie 
evidence  of  the  intent  to  exclude  others,  it  can  be  drawn  as  a  test 

67— '* Powers    in    Trust,"    John  Ves.    382     (1804);     and    by    Lord 

Chipman  Gray,  25  Harv.  L,  Eev.  1,  Eldon,  C,  in  Bax  v.  Whitbread,  16 

26:     "But  the  rule  as  to  illusory  Ves.    15     (1809),    and    Butcher    v. 

appointments  is  unique  in  the  law.  Butcher,    1    Ves.    &   B.    79,    94,    96 

Other    rules    of    doubtful    character  (1812), 

have  found  defenders  or  apologists,  "This  state  of  things  was  so  in- 

but  no  one  has  had  a  good  w6rd  for  tolerably     inconvenient     and     mis- 

this.    It  has  been  condemned  in  the  chievous  that  a  statute  was  passfed 

most    unmeasured    terms    by    judge  abolishing  the  rule  as  to  illusory  ap- 

after  judge;  by  Sir  Richard  Pepper  pointments."     [St.   11  Geo.  IV.  & 

Arden  (afterwards  Lord  Alvanley),  1  Wm.  IV.  c.  46   (1830).] 

M.  R.,  in  Spencer  v.  Spencer,  5  Ves.  68— Graeff  v.  DeTurlj,  44  Pa.  527 

362    (1800) ;  Kemp  v.  Kemp,  ihid.,  (1863) ;    Hawthorn    v.    Ulrich,    207 

849  (1801);  by  Sir  William  Grant,  111.  430,  69  N.  E.  885  (1904). 
M.    B.,    in   Butcher    v.    Butcher,    9 

79 


§82]  THE  COMMON  LAW  [Ch.  5 

for  illegality  itself.  It  is  not  at  all  denied  that  such,  a  line  can 
be  drawn.  The  argument  is  that  when  drawn  as  a  test  of  ille- 
gality, it  is  one  which  the  courts  should  not  draw,  but  as  an  evi- 
denoe  of  an  ultimate  fact  of  excluding  purpose,  it  may  be  con- 
sidered alone  or  with  other  evidence  for  what  it  is  worth,  sub- 
ject like  other  evidence  to  have  the  inferences  arising  from  it 
rebutted. 

§  83.  (7)  It  is  a  fair  inference  from  Mr.  Brandeis'  testimony 
that  he  did  not  draw  any  line  between  combinations  of  labor 
units  and  combinations  of  managing  units,  so  far  as  illegal  at- 
tempts at  monopoly  were  concerned.    He  was  asked :  ^^ 

**Do  you  regard  the  closed  shop  in  labor  as  a  tendency  toward  monopoly, 
jv^t  as  you  do  a  combination  of  plants?" 

to  which  he  answered: 
"Yes." 

It  seems  hardly  conceivable  that  Mr.  Brandeis  would  have  made 
mere  size  and  preponderant  position  in  a  labor  market  of  a  given 
labor  union,  in  and  of  itself,  a  test  of  illegality.  Indeed,  it  seems 
generally  accepted  that  labor  unions  can  be  as  large  as  possible 
and  occupy  as  preponderant  a  position  in  the  labor  market  as 
size  can  give,  and  that  they  only  become  illegal  when  they  have 
the  excluding  purposes  or  indulge  in  unlawful  excluding  prac- 
tices.'^*^ Why,  then,  it  may  be  asked,  make  the  size  of  combina- 
tions of  managers  and  their  properties,  or  of  the  properties  alone, 
in  and  of  itself,  illegal  ? 

§  84.  (8)  It  will  be  argued,  however,  that  if  size  is  not  in 
and  of  itself  illegal,  then  if  100  per  cent  of  all  the  property  and 
managers  engaged  in  a  given  industry  unite  and  have  no  exclud- 
ing purposes  or  indulge  in  no  unlawful  excluding  practices,  the 
combination  would  be  valid,  although,  until  others  could  come 
into  the  field,  it  would  have  an  absolute  monopoly. 

§  85.  In  meeting  the  argument  based  upon  this  extreme  case, 
we  must  first  asssume  that  there  is  no  such  control  of  natural 

69 — ^Report  of  hearing  before  the  70 — See  cases,  ante  §  72,  n.  51,  53. 

Senate     Committee     on     Interstate 
Commerce,  supra,  1180. 

80 


Ch.  5]  COMBINATIONS  [§86 

resources  or  strategic  points  as  practically  to  exclude  others,  or 
to  make  their  entrance  into  the  business  unusually  difficult.  The 
case  put  must  be  looked  at  as  one  in  which  the  field  is  really  free 
to  others  to  enter.  With  this  condition  properly  emphasized  the 
combination  of  100  per  cent  of  all  those  engaged  in  a  given  busi- 
ness presents  no  special  feature  except  the  fact  that  for  some 
time,  not  at  all  clearly  defined,  but  upon  our  assumption  of  a 
free  field,  comparatively  short,  the  combination  could,  if  it 
chose,  fix  such  prices  as  it  pleased.  This  is  offset  by  Mr.  Bran- 
deis'  view  that  size  alone  without  any  excluding  purposes,  prac- 
tices, or  surrounding  conditions,  is  quickly  self-destructive  by 
reason  of  the  inefficiency  of  the  combination  and  the  resulting 
successful  competition.  It  is  also  offset,  in  part  at  least,  by  the 
natural  motive  to  sell  cheaply  enough  to  cause  the  public  to  buy, 
and  at  the  same  time  not  unduly  encourage  others  to  come  into 
the  business.  Such  prices  would  be  fair  prices  because  they 
would  be  the  highest  possible,  taking  into  account  the  proper 
reaction  from  the  fact  that  the  market  was  free  to  others. 

§  86.  Suppose,  however,  the  100  per  cent,  combination  did 
continue  for  an  appreciable  term  and  attempted,  in  disregard 
of  these  natural  motives,  to  enter  upon  a  debauch  of  exorbitant 
and  monopoly  prices,  regardless  of  consequences,  during  such 
period  as  was  possible.  That  would  clearly  be  contrary  to  the 
public  interest.  Nevertheless,  the  more  outrageous  the  conduct  of 
the  temporary  monopoly  the  quicker  would  be  the  relief  by  the 
entry  of  others  and  the  greater  the  load  of  unpopularity  which 
the  combination  would  have  acquired.  The  question  is :  Should 
the  public  interest  be  left  thus  to  suffer  temporarily  in  this 
largely  problematical  case,  rather  than  that  every  combination 
of  capital  which  approached  the  vague  standard  of  a  prepon- 
derant position  in  the  business  should  be  subjected  to  the  terrors 
of  indictment  and  uncertainty  as  to  the  legality  of  its  business 
organization,  and  that  every  combination  which  had  a  clear 
preponderant  position  in  the  business,  because  it  had  from  40 
per  cent  to  80  per  cent  of  the  market  should  be  ipso  facto  illegal 
when  it  had  no  such  power  over  prices  as  in  the  hypothetical  case 
put?  It  is  submitted  that  the  hypothetical  case  of  the  100  per 
cent  combination  which  used  its  position  for  however  short  a 
time  to  charge  exorbitant  prices,  should  be  left  to  be  dealt  with 
Kales  Sum.  R.  of  T.— 6  81 


§86]  THE  COMMON  LAW  [Ch.5 

by  the  legislature,  or  by  the  courts  when  that  ease  arises.  The 
result  which  the  court  might  conceivably  feel  obliged  to  reach 
in  such  a  case  is  no  argument  in  favor  of  the  court  drafting  a 
judicial  test  of  illegality  for  all  combinations  based  upon  size 
and  preponderant  position  in  the  business,  and  that  alone. 

§  87.  In  the  same  way  many  arguments  in  favor  of  mere  size 
being  made  the  test  of  illegality,  founded  upon  some  extraor- 
dinary hypothetical  action  of  a  combination  with  a  preponderant 
position  in  the  business,  may  be  met.  For  instance,  it  is  said 
that  a  trust  might  withdraw  '  *  temporarily  from  the  market ' '  so 
that  prices  would  rise,  or  it  might  release  *'an  unusual  quantity 
of  goods  upon  the  market"  so  that  prices  would  fallJ^  There 
are  limits  to  be  observed  by  the  courts  in  the  placing  of  restric- 
tions upon  the  legality  of  business  organizations  which  certainly 
affect  the  freedom  of  action  of  all  in  order  to  take  care  of  a  few 
problematical  and  remotely  probable  situations, 

§  88.  (9)  The  effort  to  make  mere  size  a  test  of  illegality 
always  includes  the  argument  that  preponderant  position  in  the 
business  confers  such  power  and  opportunity  for  illegal  exclud- 
ing practices,  and  the  danger  of  their  being  used  is  so  great  that 
the  entire  combination  should  be  condemned  on  the  basis  of  size 
only.  Obviously,  however,  if  the  mere  possession  of  the  power  to 
commit  a  wrongful  act  were  itself  a  wrong,  the  number  of  unlaw- 
ful status  would  increase  to  the  extent  of  the  number  of  possible 
natural  and  artificial  persons  multiplied  by  the  number  of  pos- 
sible offenses.  Even  to  be  guilty  of  an  attempt  to  commit  a  crime, 
the  mere  power  is  not  enough.  The  actor  must  take  substantial 
steps  in  the  direction  of  the  criminal  act.  Certainly  the  mere  pos- 
session of  power  to  commit  a  wrongful  act  can  only  become  a 
wrong  when  the  wrongful  use  of  the  power  is  so  likely  to  follow 
from  its  possession,  and  is  so  difficult  to  reach,  in  and  of  itself, 
that  the  mere  possession  of  the  power  must  be  condemned  as  in  it- 
self illegal.  No  court  has  yet  said,  and  it  is  believed  no  court 
should,  in  view  of  our  recent  experiences,  undertake  to  say,  that  it 
is  necessary  to  hold  the  mere  possession  of  the  power  to  exclude 
others  by  illegal  practices  itself  illegal,  in  order  to  prevent  the 

71 — Brief  of  the  Government  in  United  States  (now  pending  in  the 
International      Harvester      Co,      v.      United  States  Supreme  Court),  86, 

82 


Ch.  5]  COMBINATIONS  [§  89 

unlawful  use  of  that  power.  It  is  enough  to  point  to  the  com- 
binations occupying  a  preponderant  position  in  different  indus- 
tries which  the  government  has  recently  investigated  to  make 
clear  that  since  business  has  discovered  that  excluding  purposes 
and  practices  are  illegal,  there  has  been  an  obvious  tendency  to 
abandon  them  entirely.  This  appears  particularly  in  the  case  of 
United  States  v.  Keystone  Watch  Case  Co.,'^2  United  States  v. 
United  States  Steel  Corporation/^  ^nd  United  States  v.  American 
Can  CoJ*  The  International  Harvester  Co.  appears  never  to 
have  indulged  in  any  unlawful  excluding  practices,  or  to  have 
had  any  excluding  purposes.'"^ 

§  89.  (10)  In  Mr.  Brandeis'  testimony  only  one  suggestion 
has  been  found  in  support  of  his  opinion  that  a  combination 
occupying  a  preponderant  position  in  the  business  may,  by  rea- 
son of  its  size  alone,  be  "a  menace  to  the  community."  It  is  as 
follows :  ''^ 

"1  have  considered  and  do  consider  that  the  proposition  that  mere  big- 
ness cannot  be  an  offense  against  society  is  false,  because  I  believe  that 
our  society,  which  rests  upon  democracy,  cannot  endure  under  such  condi- 
tions.    Something  approaching  equality  is  essentiaL'* 

This  is  an  echo  of  views  which  have  been  expressed  by  courts 
from  time  to  time.'^''"  The  trusts,  it  is  said,  take  opportunity  from 
independent  business  men.  They  make  an  industrial  world  of 
employees  instead  of  independent  business  men.  They  menace 
equality  of  opportunity  and  consequently  that  ideal  of  democ- 
racy which  rests  upon  such  equality. 

A  good  deal  involved  in  this  view  does  not  square  with  Mr. 
Brandeis'  main  thesis  that  the  trust  which  has  only  size  is  so  inef- 
ficient that  it  must  fail  or  decline  in  the  face  of  the  successful 
competition  of  smaller  and  more  efficient  units.  If  the  bigness 
which,  ex  hypothesis  menaces  democracy  is  also  a  menace  to  itself, 
how  can  it  menace  democracy,  or  the  privilege  of  doing  business 
in  the  smaller  units?    The  fact  is  that  when  the  mind  is  con- 

72 — 218  Fed.  502  (1915).  76— Report  of  hearing  before  the 

73 — 223  Fed.  55   (1915).  Senate     Committee     on     Interstate 

74—230  Fed.  859;  234  Fed.  1019  Commerce,  supra,  1167. 

(1916).  77 — Some    of    these    cases    have 

75—214  Fed.  987  (1914).  been  collected,  ante  §68,  n.  44. 

83 


§  89]  THE   COMMON   LAW  [Ch.  5 

vineed  that  excluding  purposes  and  practices  can  be  separated 
from  size  and  suppressed  apart  from  holding  mere  size  illegal, 
the  substantial  objections  to  size,  as  such,  disappear.  All  that  is 
left  is  a  residue  of  fear  and  bias — fear  that  large  combinations 
may  at  any  time  resort  to  a  use  of  their  power  to  exclude  others 
from  the  business;  bias  against  size  which  took  root  during  the 
period  when  size  and  excluding  purposes  and  practices  were  in- 
separable. All  reasonable  concessions  are  made  to  this  "fear" 
and  this  "bias"  when  the  preponderant  position  of  any  combina- 
tion is  made  prima  facie  evidence  of  its  excluding  purposes  and 
practices  and  hence  of  its  illegality.  It  is  not  at  all  clear  from 
Mr.  Brandeis'  testimony  in  1911  that  he  would  have  rejected  such 
a  position  if  it  had  been  presented  to  his  mind. 

In  some  cases,  no  doubt,  a  bias  against  size  may  be  founded 
upon  an  individual  preference  for  the  simplicity  of  the  social 
and  industrial  order  of  the  frontier.  That  may  be  put  down 
as  incurable.  Old  men  hark  back  to  the  days  of  their  youth,  but 
courts  cannot  contribute  to  the  running  of  the  social  order  of 
the  present  and  the  future  by  confining  themselves  to  the  use 
of  such  important  improvements  as  the  horse  cars  and  gas  mains 
of  the  '70s.  The  simplicity  of  the  frontier  is  now  largely  pre- 
historic. The  combinations  which  are,  and  indeed  must  be,  per- 
mitted mean  substantially  an  industrial  world  of  employees 
rather  than  of  independent  individuals  engaged  in  business.  Un- 
der any  restriction  as  to  size,  which  the  courts  could  posssibly 
pronounce,  the  ideal  of  a  frontier  order  of  society  with  its  equal 
opportunity  for  all  would  not  conceivably  be  reached.  It  is 
unthinkable  that  any  court  should  settle  the  size  of  industrial 
units  by  a  judicial  fiat  which  was  founded  only  in  a  sentimental 
bias  in  favor  of  the  simplicity  of  life  as  it  existed  in  the  frontier 
days  of  half  a  century  ago. 

§90.  (11)  Finally,  it  is  important  to  observe  that  in  the 
making  of  a  prohibition  upon  the  size  of  combinations  and  busi- 
ness units,  the  courts  are  in  a  very  different  position  from  the 
legislature,  and  that  one  who  addresses  a  legislative  committee 
on  the  subject  very  properly  enters  upon  an  expression  of  views 
and  proposals  which  the  court  in  considering  the  same  subject 
could  not  entertain.  The  legislature  may  mark  out  lines  as  to 
size  as  it  pleases  with  such  qualifications  and  exceptions  as  it 

84 


Ch.  5]  COMBINATIONS  [§  91 

deems  expedient.  In  so  doing  it  may  go  upon  views  of  economic 
fact  which  are  speculative.  It  may  even  promulgate  a  rule 
founded  upon  the  passion  and  prejudices  of  a  majority. 

The  courts,  on  the  other  hand,  in  fixing  the  size  of  industrial 
and  commercial  units,  must,  from  the  nature  of  their  function, 
promulgate  a  prohibition  which  is  couched  in  general  terms,  uni- 
versally applicable,  and  without  illogical  or  detailed  exceptions. 
It  must  run  the  chance  of  being  too  liberal  and  letting  in  some 
results  concededly  against  the  public  interest,  which  the  legisla- 
ture must  deal  with  in  detail,  rather  than  draw  the  line  too 
tight  and  unduly  embarrass  the  freedom  of  managers  in  the  in- 
dustrial and  commerical  world  in  their  determination  of  the 
most  efficient  and  economically  proper  unit  of  size.  It  must 
beware  of  basing  a  restriction  upon  economic  conclusions  which 
are  uncertain  and  speculative,  and  which  may  be  founded  upon 
passion  and  prejudice  rather  than  knowledge  of  essential  facts 
and  sound  analysis  of  the  situation.'''^ 

§91,  The  making  of  the  rule  against  perpetuities  is  a  fair 
example  of  the  observance  by  a  court  of  these  limitations.  From 
the  time  the  rule  began  to  take  shape  as  a  result  of  Lord  Notting- 
ham's  decision  in  the  Duke  of  Norfolk's  Case,'''^  the  English  courts 
have  constantly  adopted  liberal  boundary  lines  so  as  to  permit 
testators  to  do  what  they  had  been  accustomed  to  do  up  to  the 
point  where  the  courts  were  certain  that  the  owner  of  property 
was  going  too  far  in  the  creation  of  remote  limitations.  In  the 
Duke  of  Norfolk's  Case,  which  was  the  beginning  of  this  process, 
there  was  a  fundamental  struggle  to  make  a  far  stricter  rule — to 
draw  an  artificial  line  between  future  interests  in  terms  after  a 

78 — Ontario  Salt  Co.  v.  Merchants  application  of  some  well-established 
Salt  Co.,  18  Grant  (U.  C.)  540,  549  rule  of  law,  but  upon  my  own 
(1871)  [616],  Strong,  V.  C,  in  up-  notions  of  what  the  public  good  re- 
holding  a  combination  of  salt  pro-  quired — in  effect  to  arbitrarily  make 
ducers,  said:  "Did  I  even  think  the  law  for  the  occasion.  I  can 
otherwise  than  I  do,  that  this  ar-  conceive  no  more  objectionable  in- 
rangement  was  injurious  to  the  stance  of  what  is  called  judge-made 
public  interests,  I  should  hesitate  law,  than  a  decision  by  a  single 
much  before  I  acted  on  such  an  judge  in  a  new  and  doubtful  case 
opinion,  for  I  should  feel  that  I  that  a  contract  is  not  to  bind  on 
was  called  on  to  relieve  parties  from  the  ground  of  public  policy." 
a  Bolemn  contract,  not  by  the  mere  79 — 3  Ch.  Caa.  1  (1682). 

85 


§91]  THE  COMMON  LAW  [Ch.  5 

life  estate  and  future  interests  in  terms  taking  effect  at  the 
death  of  the  first  taker,  but  after  an  absolute  interest.  Indeed, 
it  was  only  by  the  narrowest  margin  that  this  step  was  avoided 
and  Lord  Nottingham's  view  adopted.®^  The  generalization  thus 
worked  out  permitted  Peter  Thellusson  to  direct  an  accumulation 
of  his  estate  for  a  period  measured  by  a  considerable  number  of 
lives  in  being  at  his  death.^^  He  could,  as  a  matter  of  fact,  have 
provided  for  an  accumulation  for  the  period  of  these  lives  and 
twenty-one  years  thereafter.  The  result  thus  reached  under  the 
rule  against  perpetuities  was  regarded  as  contrary  to  the  public 
interest,  and  the  Thellusson  Act  was  passed  to  control  accumula- 
tions for  the  future.  In  this  country  some  legislatures  have 
thought  the  common  law  rule  against  perpetuities  too  liberal 
and  have  made  the  limit  two  lives  in  being,  without  any  term  of 
twenty-one  years. 

Apply  to  our  problem  the  vision  and  judgment  which  Lord 
Nottingham  brought  to  the  creation  of  a  test  regarding  the  valid- 
ity of  future  interests,  and  our  conclusions  are  not  in  doubt: 
"When  the  courts  took  the  stand  that  a  combination  occupying  a 
preponderant  position  and  having  excluding  purposes  or  using 
unlawful  excluding  practices  was  illegal  they  took  sure  ground 
and  have  had  no  reason  to  regret  it.  They  will  equally  be  on  safe 
ground  if  they  hold  that  size  and  preponderant  position  are  prima 
facie  evidence  of  the  purpose  to  exclude  others  which  places  upon 
the  combination  the  burden  of  rebutting  the  inference  of  exclud- 
ing purposes  and  practices.  But  when  the  courts  undertake  to 
say  that  mere  size  alone  is  against  the  public  interest  they  enter 
the  realm  of  uncertainty  and  speculation  both  as  to  economic 
facts  and  results.    It  is  the  realm  where  law-making  *  *  may  degen- 

80 — In    the    Duke    of    Norfolk's  him.      After     Lord     Nottingham's 

Case,   3   Ch.  Cas.   1,  Lord  Chancel-  death.    Lord    North    became    Lord 

lor    Nottingham    was    assisted    by  Keeper  of  the  Great  Seal,  and  upon 

Lord  Chief  Justice  Pemberton,  Lord  a    bill    of    review    he    reversed    the 

Chief  Justice  North,  and  Lord  Chief  decree  of  Lord  Nottingham,  but  on 

Baron  Montague.     The  Lord  Chan-  appeal  to  the  House  of  Lords  the 

cellor   differed   from   these   judges,  decree  of  the  Lord  Keeper  was  re- 

and  entered  a  decree  in  accordance  versed  and  the  decree  of  the  Lord 

with    his    own    opinion,     and    dis-  Chancellor  affirmed, 
regarded     the     opinions     of     those  81 — Thellusson    v.    Woodford,    11 

whom     he    had    asked    to    assist  Yes.  112  (1805). 

86 


Ch.  5]  COMBINATIONS  [§  92 

erate  into  the  mere  private  discretion  of  the  majority  of  the 
court  as  to  a  subject  of  all  others  most  open  to  difference  of 
opinion  and  most  liable  to  be  affected  by  changing  circum- 
stances, ' '  ^2  and  where  the  quaint  language  of  an  English  judge 
becomes  applicable:  ''Public  policy  is  an  unruly  horse,  and  **! 
when  once  you  get  astride  it,  you  never  know  where  it  will  carry  ' 
you."  83 

Conclusion 

§92.  In  the  decades  from  1880  to  1900  a  great  fear  of  the 
power  of  new  combinations  spread  throughout  the  United  States. 
The  power  which  came  from  combination  had  been,  and  was  be- 
ing, abused.  Unlawful  excluding  purposes  and  practices  were 
the  regular  accompaniments  of  combinations  which  occupied  a 
preponderant  position  in  the  business.  All  such  combinations, 
therefore,  received  a  bad  name,  and  combination  was,  in  and  of 
itself,  distrusted.  Since  perhaps  1910  it  has  become  each  year 
more  apparent  that  the  evil  side  of  combination  was  the  existence 
of  the  excluding  purposes  and  the  use  of  unlawful  excluding 
practices.  Each  year  it  has  become  more  apparent  that  these 
excluding  purposes  and  practices  may  be  eliminatetd  and  the 
freedom  of  the  market  secured,  without  touching  the  combina- 
tion itself.  It  has  become  more  and  more  apparent  that  the  tran- 
sition of  business  units  from  smaller  to  larger  and  then  to 
still  larger  units  is  a  desirable  side  of  combination,  and  a  move- 
ment in  which  the  public  has  a  vital  interest.  It  has  become  more 
and  more  apparent  that  some  experiment  was  necessary  to  deter- 
mine what  was  the  most  efficient  size  for  business  units  in  a  given 
branch  of  industry,  and  that  where  the  field  is  really  free  to 
others  to  enter,  the  determination  of  the  question  of  proper  size 
may  be  left  to  the  play  of  economic  forces.  If  these  observations 
are  sound,  they  clearly  point  to  the  drawing  of  the  line  between 
good  and  bad  trusts  at  the  place  where  the  excluding  puproses  or 
unlawful  excluding  practices  commence.    It  is  sufficient  protec- 

82 — Comment  on  Hilton  v.  Ecker-  83 — Per   Burrough,  J.,  in   Eich- 

sley,  6  E.  &  B,  47    (1855)   by  the  ardson  v.  Mellish,  2  Bing.  229,  252 

editors   of   Smith's  Leading  Cases,  (1824). 
Mr.  Justice  Willes  and  Mr.  Justice 
Keating  (4  ed.  vol.  1,  p.  286). 

87 


§92]  THE  COMMON  LAW  [Ch.  5 

tion  to  the  public  and  a  sufficient  concession  to  the  possible  abuse 
of  power  by  combinations,  and  any  bias  against  them,  that  every 
combination  having  a  preponderant  position  at  the  time  it  is 
organized  must  sustain  the  burden  of  rebutting  a  prima  facie  in- 
ference of  excluding  purposes  and  unlawful  excluding  practices. 


8Q 


CHAPTER  VI 
COMPETITIVE  METHODS 

§  93.  If  we  regard  torts  as  consisting  of  an  act  of  the  defend- 
ant resulting  in  damage  to  the  plaintiff  which  is  without  justifi- 
cation, we  have  here  to  consider  how  far  the  social  interest  in 
freedom  to  compete  will  justify  acts  of  competition  which  ac- 
complish what  they  were  designed  for,  namely,  damage  to  the 
defendant  in  his  business. 

First  of  all  we  find  certain  classes  of  acts  resulting  in  damage 
which  do  not  derive  any  justification  at  all  from  the  fact  that 
they  are  used  in  competition  to  defeat  a  business  rival,  e.g.: 
inducing  another  trader  to  break  his  contract,  fraud,  libel,  intim- 
idation, and  coercion. 

Secondly,  we  come  at  once  to  a  class  of  acts  used  in  the  course 
of  competition  and  causing  damage,  which  are  sometimes  justi- 
fied and  sometimes  not.  Whether  or  not  a  justification  exists 
seems  to  depend  upon  the  size  of  the  aggressor  and  his  position 
in  the  business  relative  to  the  entire  business.  That  is  to  say, 
if  the  act  and  damage  are  committed  by  one  who  has  no  prepon- 
derant position  in  the  business  and  against  one  who  has  a  fair 
opportunity  to  achieve  the  same  position  as  the  aggressor  and  to 
retaliate  effectively,  no  tort  has  been  committed.  The  fact  of 
competition  between  business  rivals  and  the  social  interest  in 
such  competition  justifies  the  act  and  damage.  But  if  the  ag- 
gressor has  a  preponderant  position  in  the  business,  the  same  act 
and  damage  are  not  justified  and  he  will  be  guilty  of  a  tort. 

This  subject  is  new.  The  law  is  in  the  making.  The  distinc- 
tion suggested  is  fairly  discernible  in  the  cases.  Even  if  it  be 
the  true  line  of  distinction,  still  judicial  decisions  have  done 
nothing  as  yet  to  define  whether  a  preponderant  position  rela- 
tive to  the  entire  business  is  an  essential,  or  whether  the  tort  will 
arise  if  the  aggressor  has  a  preponderant  position  relative  to  that 
of  the  one  damaged.    Nor  has  any  attempt  been  made  as  yet 


§  93]  THE    COMMON   LAW  [Ch.  6 

to  say  what  position  is  preponderant  relative  to  a  given  business 
as  a  whole. 

The  soundness  of  the  discriminations  here  suggested  can  best 
be  tested  by  an  analysis  of  the  results  reached  in  the  following 
leading  eases. 

§94.  In  Mogul  Steamship  Co.  v.  McGregor,  Gow  &  Co.i  a 
combination  of  steamship  owners  operating  in  the  China  trade 
did  not  commit  a  tort  to  a  business  rival,  whose  trade  was  dam- 
aged by  the  offer  of  specially  favorable  terms  to  shippers  who 
would  deal  exclusively  with  the  combination  and  by  cutting 
prices  in  particular  localities  to  drive  away  competition.  This 
was  a  case  where  the  act  and  damage  were  justified  because  done 
in  the  course  of  competition.  The  social  interest  in  competition 
permitted  these  methods.  There  was  no  showing  that  the  defend- 
ants had  any  preponderant  position  in  the  business  which  made  it 
impossible  for  the  plaintiff  to  retaliate  by  doing  the  same  thing. 
For  aught  that  appears,  the  defendants  had  a  large  fleet  which 
could  have  been  mobilized  in  the  China  trade  and  could  have 
prosecuted  the  same  methods  which  were  complained  of. 

§  95.  The  same  remarks  apply  to  the  case  of  Scottish  Co- 
operative Wholesale  Society  v.  Glasgow  Fleshers'  Trade  Defense 
Association.2  In  that  case  the  butchers  at  a  foreign  cattle  auc- 
tion exchange  declared  that  they  would  not  buy  at  all  unless 
the  exchange  refused  to  sell  to  the  Co-operative  Society,  which 
was  the  butchers'  rival.  It  was  held  that  this  was  not  a  tort 
against  the  Co-operative  Society.  The  butchers  were  the  stronger 
in  this  instance,  but  they  did  not  have  any  preponderant  position 
relative  to  the  entire  business.  The  opportunity  was  open  to  the 
others  to  increase  their  strength  and  retaliate.  It  was  a  case  of 
mere  competition  and  nothing  else. 

§  96.  In  Allen  v.  Flood  ^  there  was  competition  between  two 
groups  of  workers.  Each  wanted  the  iron  work  in  shipbuilding 
yards.  One  threatened  to  strike  unless  the  employer  discharged 
those  belonging  to  the  other.  This  was  not  a  tort  against  the  men 
discharged.  The  case  clearly  establishes  the  right  of  employees 
to  strike  as  a  means  of  successful  competition  with  another  group 

1— L.  E.  [1892]  A.  C.  25  [309].    3— L.  E.  [1898]  A.  0.  1  [337]. 
2— -35  Scot  L.  Eep.  645  (1898). 

90 


Ch.  6]  COMPETITIVE  METHODS  [§  97 

of  employees  which  is  seeking  from  the  same  employer  work 
which  the  first  group  desires  to  do.  As  a  matter  of  fact,  how- 
ever, it  goes  farther  for  it  made  no  difference  in  Allen  v.  Flood 
that  the  employer  had  not  given  and  was  not  going  to  give  any 
of  the  iron  work  in  his  yard  to  the  men  discharged.  Nor  did 
it  make  any  difference  that  the  discharge  of  the  plaintiff  was 
secured  as  part  of  the  competitive  struggle  of  the  defendant  to 
prevent  the  plaintiff  from  securing  the  iron  work  in  dispute  in 
other  yards  and  at  other  times. 

It  should  be  noted  that  there  was  no  preponderant  position  in 
the  labor  market  on  the  part  of  the  men  who  threatened  to 
strike.  They  evidently  were  stronger  at  the  point  in  question 
than  the  plaintiffs.  After  all,  however,  it  was  a  simple  case  of 
rivalry  and  competition  between  the  two  groups.  The  plaintiffs 
were  equally  privileged  to  use  the  same  methods  if  they  could  do 
so  effectively.  The  court  could  hardly  do  otherwise  than  give 
effect  to  the  freedom  of  competitors  to  compete  in  this  manner. 
The  novelty  about  Allen  v.  Flood  was  the  fact  that  the  court 
found  itself  confronted  with  a  case  where  one  group  of  laborers 
was  competing  with  another  group  and  using  the  strijje  as  a 
means  to  achieve  success  in  that  competition. 

§  97,    In  Quinn  v.  Leathem  *  the  employees  of  M  threatened     .  / 

to  strike  for  the  purpose  of  inducing  M  not  to  deal  with  L  so  /i*^^*'''^'^'**^ 
that  the  group   of  employees  to  which   the  employees  of  M  "^^-'"/^ 
belonged  could  secure  the  places  of  L  's  employees.    This  threat  jJ^^^J^-^'^^ 
of  strike  resulting  as  it  did  in  M  withdrawing  his  patronage  s^  ^^^"77*^* 
from  L  was  a  tort  to  L  for  which  the  employees  of  M  werq^£^^ 
liable.    Here  the  act  and  damage  were  not  justified  by  their  rela-   .  • 
tion  to  a  competitive  struggle  and  hence  constituted  a  tort. 
Furthermore,  size  or  preponderant  position  on  the  part  of  the  '^^  -Vj^^a 
defendant  organization  was  held  not  to  be  necessary  to  the  exist-     ^  '  ^' 
ence  of  the  tort.    The  act  and  damage  would  have  been  a  tort      /  Vf 
regardless  of  the  size  of  the  defendant. 

The  distinction  between  this  case  and  that  of  Allen  v.  Flood 
is  clear.  In  Allen  v.  Flood,  the  employees  of  M  threatened  to 
strike  for  the  purpose  of  compelling  M  to  discharge  the  rival 
workmen  of  the  defendants.  The  defendants,  who  were  employees 

4— L.  R.  [1901]  A.  C.  495  [347]. 

91 


§97]  THE   COMMON  LAW  [Ch.  6 

of  M  struck  or  threatened  to  strike  to  require  M,  who  had  a 
direct  relation  with  the  rival  group  of  employees  to  discharge 
them  from  his  employ.  In  Quinn  v.  Leathem  on  the  other  hand, 
the  employees  of  M  threatened  to  strike  to  induce  M  to  with- 
draw his  trade  from  L  so  that  L  would  discharge  the  rival 
group  of  employees.  Why  make  any  distinction  between  those 
two  cases?  In  Allen  v.  Flood  the  competition  was  between 
the  two  groups  working  for  the  same  employer  and  the  pres- 
sure which  one  group  brought  to  bear  upon  the  other  was 
direct  because  the  defendant  group  of  employees  threatened  to 
strike  to  induce  their  employer  to  discharge  the  rival  group. 
In  Quinn  v.  Leathem,  the  pressure  was  indirect  and  required  the 
threat  of  harm  to  those  who  had  no  relation  to  the  competitive 
struggle  in  question,  or  any  direct  power  over  the  group  of  em- 
ployees with  which  the  parties  threatening  to  strike  were  com- 
peting. Why  should  this  distinction  make  a  difference?  The 
question  is  largely  one  of  degree.  The  line  must  be  drawn  some- 
where.   Where  better  than  here  ? 

§  98.  Curran  v.  Galen  ^  and  National  Protective  Association 
V.  Gumming^  should  be  considered  together. 

In  Curran  v.  Galen  the  union  and  the  employer  had  a  con- 
tract that  non-union  men  were  to  be  discharged.  This  was 
carried  out  and  the  discharged  non-union  employees  sued  the 
union  in  tort  and  recovered.  In  National  Protective  Association 
v.  Gumming,  the  union  threatened  the  employer  with  a  strike 
unless  the  non-union  men  were  discharged.  The  discharged  non- 
union men  were  not  permitted  to  sue  the  rival  union  in  tort. 

Thus  stated  the  only  distinction  between  the  cases  is  that  in 
Curran  v.  Galen  there  was  an  agreement  between  the  union  and 
the  employer,  while  in  the  National  Protective  Association  case 
there  was  merely  a  threat  by  the  employees  to  strike.  Does  that 
make  any  difference  ?  The  agreement  is  more  peaceful  than  the 
strike,  and  yet  the  agreement  effects  a  combination  of  employers 
and  employees  which  does  not  usually  accompany  the  strike. 
Is  it  possible  that  you  can  do  by  strike  what  you  cannot  do  by 
agreement  ? 

It  is  submitted  that  the  sounder  line  of  distinction  between 

5—152  N.  Y.  33  (1897)   [408].  6—170  N.  Y.  315  (1902)  [413]. 

92 


Ch.  6]  COMPETITIVE  METHODS  [§99 

the  two  cases  is  this:  In  Curran  v.  Galen  the  union  was  a 
national  organization.  It  had  size.  We  may  assume  that  it  had 
a  preponderant  position  in  the  particular  group  of  labor  which 
it  represented.  It  had  the  power  which  size  gave  it.  Against 
that  power  the  individual  unorganized  unit  had  no  chance  for 
retaliation.  The  exclusive  contract  was  itself  direct  evidence 
of  an  intention  to  exclude  others  from  the  labor  market  and 
thus  secure  a  monopoly.  When  such  an  excluding  practice  as 
this  contract  is  employed  by  such  a  combination  with  such  a 
purpose,  the  resulting  damage  can  not  be  justified  upon  any 
ground  of  permitting  free  and  unrestricted  competition.  On  the 
other  hand  in  National  Protective  Association  v.  Gumming,  we 
have  a  contest  between  two  unions.  One  was  seeking  to  secure 
certain  work  against  the  other.  One  union  was  more  powerful 
than  the  other,  but  it  could  not  be  said  that  it  occupied  a  pre- 
ponderant position  in  the  labor  market  of  the  country.  The 
court  in  the  National  Protective  Association  case  was  after  all, 
dealing  merely  with  the  competition  of  two  collective  units. 
The  use  by  one  of  the  strike  in  order  successfully  to  compete 
with  the  other  was  merely  competition,  such  as  occurred  in  the 
Mogul  case  '^  and  Allen  v.  Flood.^ 

§  99.  Berry  v.  Donovan  ^  follows  Curran  v.  Galen.  The 
discharge  of  the  non-union  employee  pursuant  to  a  contract 
between  the  union  and  the  employer  was  held  to  be  a  tort  to  the 
discharged  employee  for  which  the  union  was  liable.  The  union 
here  was  not  so  much  competing  with  the  plaintiff  for  his  job 
as  it  was  attempting  to  force  the  plaintiff  into  the  union  so  as 
to  strengthen  the  union.  The  union  was  clearly  a  national  one 
and  it  may  be  assumed  that  it  had  a  preponderant  position  in 
the  labor  market  for  shoe  workers.  The  purpose  to  exclude 
others  from  that  labor  market  was  clearly  present.  Hence  the 
monopoly  feature  offsets  any  public  interest  in  allowing  free 
competition.  Clearly  if  the  defendant  union  had  threatened 
to  strike,  instead  of  securing  a  contract,  it  would  equally  have 
been  guilty  of  a  tort.  This  would  not  in  the  least  have  been 
contrary  to  Allen  v.  Flood,  because  there  the  court  was  dealing 

7— Ante  §94.  9—188  Mass.   353    (1905)    [453]. 

8— Ante  §96. 


§  99]  THE   COMMON  LAW  [Ch.  6 

with  two  local  unions,  each  competing  with  the  other  for  the 
work  in  question.  In  Allen  v.  Flood  no  case  was  presented  of 
the  defendant  union  occupying  a  preponderant  position  in  the 
labor  market  as  against  its  rival. 

§  100.  In  Vegelahn  v.  Guntner  ^^  the  striking  employees  of 
a  storekeeper  were  seeking  employment  in  the  store  at  a  price 
which  they  named.  To  accomplish  their  purpose  of  obtaining 
employment,  they  picketed  in  front  of  the  store  and  peacefully 
attempted  to  persuade  those  who  came  to  take  their  places — 
their  rivals — ^not  to  do  so.  This  was  held  to  be  a  tort  and  was 
enjoined. 

This  decision  may  be  sustained  on  the  ground  that  however 
peaceful  the  strikers  may  have  been  they  were  in  fact  inter- 
fering with  the  storekeeper's  trade  and  customers.  This  trade 
is  dependent  upon  a  relation  so  delicate  that  the  actual  presence 
of  pieketers  in  front  of  the  store  will  drive  it  away,  however 
peaceful  they  may  be.  The  strikers,  therefore,  are  in  the  position 
of  bringing  to  bear  upon  the  storekeeper  a  secondary  pressure, 
as  in  Quinn  v.  Leathern.  They  are  keeping  away  the  store- 
keeper's customers,  so  as  to  bring  the  storekeeper  to  terms. 
They  are  in  effect  turning  away  the  storekeeper's  customers,  so 
as  to  bring  pressure  upon  the  storekeeper  not  to  employ  the 
rivals  of  the  strikers. 

Suppose  this  basis  for  the  decision  be  withdrawn.  Suppose 
the  employer  is  a  mail-order  house,  so  that  there  are  no  cus- 
tomers whose  physical  presence  is  interfered  with.  Even  in 
such  a  case  we  have  an  effort  by  the  strikers  to  achieve  a  local- 
ized monopoly  by  combination.  Every  person  who  is  turned 
away  from  the  employer  is  a  party  to  a  combination  to  achieve 
a  localized  monopoly  for  the  striking  employees,  of  places  in 
the  particular  store.  If  all  who  would  seek  places  in  that  store 
can  be  turned  away  the  monopoly  is,  for  the  time  being  at  least, 
perfect. 

The  case  is  not  in  the  least  different  from  the  blacklist  by 
employers.  If  all  the  employers  from  whom  a  man  might  secure 
work  which  he  is  particularly  fitted  to  do,  combined  in  the  most 
peaceful  way  to  keep  him  from  obtaining  work  so  that  he  would 

10—167  Mass.  92    (1896)    [440]. 

94 


Ch.  6]  COMPETITIVE   METHODS  [§102 

come  to  the  employers'  terms,  we  should  have  a  localized  mon- 
opoly by  employers  directed  against  that  man.  Such  action  would 
be  a  tort  to  the  employee  who  was  blacklisted. 

The  same  principle  is  involved  where  bidders  at  a  public 
auction  combine,  however  openly  and  peacefully,  to  keep  others 
away  from  the  bidding. 

§  101.  In  Bohn  Mfg.  Co.  v.  Hollis  ^  ^  no  tort  was  committed  by 
c  retailers'  association  which  notified  its  members  not  to  deal 
with  the  wholesalers  who  sold  direct  to  the  consumer.  Such  a 
boycott  was  a  legitimate  means  of  protecting  the  business  of  the 
retailers.  The  manufacturers  and  retailers  were  possible  com- 
petitors and  yet  each  had  a  field  of  business  which  supplemented 
the  other  and  was  not  competitive.  Any  public  interest  which 
there  may  be  in  having  the  wholesalers  sell  directly  to  the  con- 
sumers is  offset  by  the  public  interest  in  not  putting  established 
retailers  out  of  business.  Furthermore,  the  courts  do  not  under- 
take to  decide  between  competing  economic  principles  but  simply 
insist  on  equal  freedom  for  the  devotees  of  each  to  compete  and 
survive,  if  possible.  The  retailers'  association  could,  therefore, 
organize  to  protect  the  retailers  from  the  manufacturers.  Hav- 
ing organized  they  could  use  the  weapon  of  the  strike  or  the 
boycott,  or  refusal  to  buy  from  the  wholesalers  who  competed 
with  them.  In  Allen  v.  Flood  one  group  of  laborers  used  the 
strike  to  prevent  the  employers  from  dealing  with  a  rival  labor 
group.  Here  the  retailer  uses  the  strike  to  prevent  the  whole- 
salers from  entering  into  competition  with  the  retailers.  Both 
are  legitimate  methods  of  competition,  so  long  as  they  are  not 
used  by  a  union  or  association  having  a  preponderant  position 
in  the  market.^^ 

§  102.  In  Martell  y.  White  ^^  we  have  an  association  of  quar- 
riers,  manufacturers  and  polishers  of  granite  at  a  single  impor- 
tant granite  center.  These  three  groups  supplemented  each 
other.  The  quarriers  furnished  stone  to  the  manufacturer  who 
passed  it  on  the  polisher.  Together  they  formed  an  association 
which  was  complete  within  itself.  Assume  that  competition 
between  the  members  in  each  group  was  suppressed  and  that 

11—54  Minn.  223   (1893)    [473].  13—185  Mass.  255  (1904)   [478]. 

12— See  post  §  132. 

95 


§  102]  THE    COMMON   LAW  [Ch.  6 

the  work  was  divided  between  them  on  some  agreed  basis.  The 
court  assumed  that  this  organization  of  the  three  groups  was 
lawful  and  proper.  To  maintain  such  an  organization,  however, 
the  members  of  each  group  must  be  loyal  to  its  rules  and  regu- 
lations. If  quarriers  at  will  could  sell  to  outsiders,  and  if  manu- 
facturers could  do  the  same,  the  organization  must  quickly  have 
fallen  to  pieces.  The  real  question  presented  was  whether  the 
association  could  enforce  loyalty  from  its  members  by  fining 
them  for  sending  work  to  outsiders.  It  was  held  that  it  could 
not.  The  fine,  it  was  held,  was  an  unlawful  means,  or  based 
upon  an  unlawful  contract  between  the  parties.  Why?  If  the 
association  was  lawful  and  loyalty  to  it  was  necessary,  why 
could  not  the  members  by  mutual  agreement  provide  such  a 
means  as  a  fine  to  make  it  effective? 

In  discussing  the  case  of  Bohn  v.  Hollis,  the  court  says  no 
fine  was  there  imposed.  On  the  contrary  ''inducements  natur- 
ally incident  to  competition"  were  used.  But  in  the  Bohn  case 
the  association  was  seeking  to  prevent  the  wholesalers  from 
competing  with  the  members  of  the  retailers'  association  in  sell- 
ing direct  to  consumers.  The  natural  method  was  to  strike 
against  the  wholesaler  who  did  compete.  There  was  no  rational 
basis  for  any  fine  upon  any  member  of  the  association  unless  it 
were  required  in  order  to  enforce  the  strike.  But  when  the 
exigencies  of  the  situation  require  all  the  members  of  an 
association  to  deal  only  with  each  other  the  strike  against  out- 
siders is  entirely  inappropriate  and  the  fine  of  members  becomes 
a  naturally  effective  and  appropriate  step.  The  different  situa- 
tions clearly  call  for  different  expedients.  Conceding,  therefore, 
the  legality  and  propriety  of  the  association  in  Martell  v.  "White 
it  should  follow  that  the  fine  of  members  was  quite  as  proper 
and  appropriate  as  the  strike  in  the  Bohn  case  and  should  have 
been  held  legal. 

What  has  thus  far  been  said  presupposes  that  the  association 
in  question  did  not  have  any  preponderant  position  in  the  busi- 
ness in  which  it  was  engaged.  Now  suppose  it  had.  The  situa- 
tion is  quite  chaoged.  The  power  of  the  preponderant  organiza- 
tion in  making  such  exclusive  arrangements  would  be  to  force 
all  into  the  association  or  to  exclude  them  from  doing  business 
entirely.    The  preponderant  position  coupled  with  the  exclusive 

96 


Ch.  6]  COMPETITIVE   METHODS  [§  103 

arrangement  would  show  a  monopoly  purpose.  Hence,  the  fine 
would  become  an  instrument  to  secure  a  loyalty  to  the  organiza- 
tion which  would  become  the  effective  means  of  achieving  the 
monopoly  purpose.  Hence  it  would  quite  properly  be  held 
illegal. 

Martell  v.  White  is  to  be  sustained,  if  at  all,  on  the  ground 
that  such  an  attempt  at  monopoly  existed.  That  depends  upon 
whether  this  association  did  or  did  not  occupy  a  preponderant 
position.  It  clearly  did  at  the  Quincy  quarries.  Were  these  so 
isolated  and  was  the  cost  of  transporting  granite  such  that 
Quincy  must  be  regarded  as  a  market  by  itself,  cut  off  from 
the  rest  of  the  world  so  far  as  quarrying,  manufacturing  and 
polishing  granite  are  concerned.  Perhaps  so — perhaps  not.  We 
do  not  know  the  facts.  This  vital  aspect  of  the  case  was  not 
developed.  Yet  the  court  may  have  been  profoundly  influenced 
by  it.  It  may  have  looked  upon  this  association  as  being  pre- 
ponderant in  Quincy  and  that  Quincy  was  a  market  by  itself. 

§  103.  In  Macauley  v.  Tierney  ^^  we  have  two  groups  of 
plumbers  competing.  One  was  organized,  the  other  was  not. 
The  organization  in  the  course  of  competition  refused  to  deal 
with  any  manufacturer  who  dealt  with  a  non-member.  This 
was  held  to  be  lawful.  It  was  not  a  tort  to  the  non-member  on 
the  part  of  the  plumbers '  association. 

Laying  aside  all  question  of  the  size  and  preponderant  position 
of  the  plumbers'  association,  we  have  here  Allen  v.  Flood  ^^ 
over  again — that  is  to  say  Allen  v.  Flood  in  its  simplest  form. 
It  is  the  strike  by  one  plumbers'  association  against  manufac- 
turers if  they  deal  with  the  other  and  rival  group.  If  the 
plumbers'  association  had  had  an  agreement  with  the  manu- 
facturer that  they  would  not  deal  with  outsiders  it  would  have 
been  valid  under  the  Mogul  case.^^ 

If,  however,  we  introduce  the  fact  that  the  plumbers'  associa- 
tion had  a  preponderant  position  in  the  plumbing  business 
throughout  the  United  States  the  whole  situation  is  changed. 
The  plumbers'  association  would  then  have  a  power  over  the 
manufacturer,  and  it  would  be  using  that  power  to  exclude  others 

14—19  B.  I.  255  (1895)   [487].  16— Ante  §  94. 

15— Ante  §96. 

Ealee  Sum.  R.  of  T.— 7  97 


§  103]  THE    COMMON   LAW  [Ch.  6 

from  the  plumbing  business.  That  is  a  clear  attempt  to  secure 
a  monopoly.  It  is  the  same  as  if  the  Standard  Oil  Company 
refused  to  sell  to  anyone  who  dealt  with  an  independent.  It  is 
the  same  as  if  the  International  Harvester  Company  refused 
to  sell  to  any  farmers  who  dealt  with  an  independent.  Such 
acts  would  be  unfair  methods  of  competition  and  illegal  and 
constitute  a  tort  on  the  part  of  the  combination  against  the 
independent  manufacturers'  damaged. 

Did  the  plumbers'  association  in  Macauley  v.  Tiemey  have  a 
preponderant  position?  It  was  a  national  organization.  One 
may  suspect  that  it  did  have  a  preponderant  position.  The 
court,  however,  entirely  neglected  this  aspect  of  the  case. 
It  failed  to  consider  the  effect  which  the  preponderant  position  of 
the  plumbers '  association  would  have  had  if  it  had  existed.  Per- 
haps it  is  fair  to  say  that  in  1895  it  was  not  apparent  to  the  court 
that  preponderant  position  was  to  have  the  consequences  which 
it  is  now  perceived  it  must  have. 

§  104.  In  Brown  &  Allen  v.  Jacobs'  Pharmacy  Co.^'^  the  mem- 
bers of  the  retailers'  association  refused  to  deal  with  whole- 
salers who  sold  to  other  retailers,  who  cut  prices  fixed  by  the 
retailers'  association.  This  was  held  to  be  a  tort  and  the  act 
of  the  retailers'  association  was  enjoined  at  the  suit  of  the 
outsider. 

Here  we  have  the  strike  against  the  wholesaler  used  to  require 
the  wholesaler  to  bring  pressure  upon  the  outsider  to  observe 
the  association's  rules  as  to  prices.  We  have  also  the  retailers' 
association  clearly  occuping  a  preponderant  position  in  the 
business.  It  was  a  national  organization.  The  court  vaguely 
hints  at  this  feature  of  the  case.  The  fact  that  the  association  of 
retailers  deals  directly  with  the  maintenance  of  prices  is  an 
assumption  of  preiponderant  position  and  power  to  exclude 
others,^^  so  that  the  association  of  retailers  presents  all  the  feat- 
ures of  an  illegal  attempt  at  monopoly.  The  act  complained  of 
in  aid  of  that  monopoly  is  clearly  a  tort. 

§  105.  In  National  Fireproofing  Company  v.  Mason  Builders' 
Association  ^^  we  have  a  case  where  the  competition  was  between 

17—115  Ga.  429  (1902)   [496].  19—169  Fed.  259  (1909)    [522]. 

18— Ante  §70. 

98 


Ch.  6]  COMPETITIVE  METHODS  [§  105 

the  group  of  bricklayers  who  wanted  inside  as  well  as  outside 
work  and  the  group  of  bricklayers  who  did  only  inside  work, 
fiuch  as  tiling  and  fireproofing,  the  contracts  for  which  were 
sublet  to  special  contractors.  It  may  be  assumed  that  the  only 
labor  employed  was  union  labor,  and  that  all  the  bricklayers 
belonged  to  the  same  union.  The  point  was,  however,  that  the 
special  contractors  for  the  inside  work  hired  bricklayers  who 
became  inside  specialists.  To  prevent  such  a  development  the 
bricklayers  refused  to  work  unless  the  entire  contract  for  all 
bricklaying  was  given  to  the  general  contractor,  who  could  then 
give  inside  work  to  outside  men.  The  operation  of  this  was  to 
prevent  the  fireproofing  company  from  doing  business  as  they 
wanted  to,  with  specialist  bricklayers  to  lay  their  particular  kind 
of  fireproofing.  The  action  of  the  bricklayers,  causing  damage 
to  the  fireproofing  company,  was  held  not  to  be  a  tort  and  an 
injunction  against  the  bricklayers  was  refused. 

Considered  apart  from  any  question  of  size  or  preponderant 
position  on  the  part  of  the  bricklayers'  association,  the  decision 
is  correct.  It  is  distinctly  the  case  of  Allen  v.  Flood  ^o  over 
again.  For  the  moment  the  two  branches  of  the  same  union 
come  into  competition.  The  many  want  to  work  in  one 
way  and  the  minority  were  willing  to  specialize.  The  majority 
threatened  to  strike  unless  the  builder  let  his  contract  in  such 
a  way  as  to  stop  the  specialization.  That  was  legitimate  compe- 
tition between  the  groups  of  workmen  just  as  it  was  in  Allen 
v.  Flood.  The  fact  that  the  fireproofing  concern  was  also  inter- 
fered with  because  of  its  relation  to  the  contract  made  no  differ- 
ence. No  doubt  third  parties  are  frequently  affected  when  one 
group  in  competition  wins  out  against  another. 

If,  however,  the  bricklayers  had  a  preponderant  position  which 
they  were  using  to  exclude  others  from  a  certain  kind  of  work 
then  the  threats  of  strike  must  have  been  a  tort  to  the  specialist 
group  of  bricklayers.  But  suppose  they  waived  the  point  or 
released  it,  or  refused  to  enforce  their  right.  Suppose  their 
sympathies  were  with  the  majority  and  they  were  willing  that 
the  views  of  the  majority  should  prevail.  Could  the  fireproofing 
concern  sue?    That  depends  upon  whether  there  was  any  inde- 

20— Ante  §96. 

99 


§  105]  THE   COMMON  LAW  [Ch.  6 

pendent  tort  committed  to  it.  The  fireproofing  concern  was 
only  damaged  as  an  incident  to  the  competition  between  the 
majority  of  the  bricklayers  and  the  specialist  bricklayers.  If 
the  specialists  did  not  object,  how  can  it  be  said  that  any  tort 
was  committed  to  the  fireproofing  concern?  If  a  competitor 
submits  to  a  rival,  others  who  are  damaged  by  reason  of  his  sub- 
mission, have  not  suffered  a  tort.  The  court  clearly  took  this 
view.  It  refused  to  let  the  fireproofing  concern  take  any  advan- 
tage of  the  fact  that  by  reason  of  size  and  preponderant  position 
of  the  bricklayers'  association,  a  tort  had  been  committed  to 
a  group  of  specialist  workmen.  This  appears  rather  vaguely  in 
the  court 's  assertion  that  the  mere  fact  that  the  bricklayers  were 
an  illegal  organization  does  not  give  the  plaintiff  a  right  to  sue 
at  common  law  or  under  the  Sherman  Act,  Having  taken  this 
step,  the  court,  apparently,  eliminated  any  fact  of  preponderant 
position  of  the  bricklayers  from  the  case  for  all  purposes.  After 
that  it  was  easy  to  find  that  no  tort  had  been  committed  to  the 
specialist  bricklayers  or  to  the  complainant — ^the  fireproofing 
concern. 

§  106.  Park  &  Sons  Co.  v.  National  Druggists  Association  ^^ 
and  Klingel's  Pharmacy  v.  Sharp  &  Dohme^z  should  be  con- 
sidered together. 

Both  cases  alike  arise  on  demurrer  and  in  both  alike  the  manu- 
facturer or  an  association  of  manufacturers  or  wholesalers  of 
drugs  refused  to  sell  to  retailers  who  did  not  keep  up  the  prices 
of  articles  on  resale.  In  both  the  plaintiff  to  whom  this  refusal 
had  been  made  was  suing  the  manufacturer  in  tort  or  to  enjoin 
his  action.  In  the  Park  &  Sons  Case  the  demurrer  was  sustained. 
No  tort  had  been  committed.  In  the  Klingel  Case  the  demurrer 
was  overruled.    A  tort  had  been  committed. 

In  Klingel's  Pharmacy  Case,  the  defendants  were  two  whole- 
sale drug  houses  which  acted  in  connection  with  a  third  defend- 
ant which  was  a  retail  druggists'  association.  These  three  had 
formed  a  combination  by  agreement  by  which  the  wholesale 
houses  would  not  sell  to  any  retail  druggist  who  cut  prices  con- 
trary to  the  rules  of  the  Retail  Druggists'  Association.  This 
was  using  the  boycott  or  the  blacklist  to  force  the  plaintiff  into 

21—175  N.  T.  1  (1903)  [553].  22—104  Md.  218  (1906)   [590]. 

100 


Ch.  6]  COMPETITIVE  METHODS  [§  106 

a  combination  of  retail  druggists  which  eliminated  competition 
as  to  prices  generally  in  the  retail  business.  If  the  position  of 
this  combination  in  the  market  had  been  a  preponderant  one, 
or  was  assumed  to  be  so  from  the  effectiveness  of  its  acts  against 
the  plaintiff,  the  boycott  would  be  a  tort  and  might  properly  be 
called  an  unfair  method  of  competition. 

In  the  Park  &  Sons  Case,  we  have,  however,  an  entirely  differ- 
ent situation.  The  defendant  in  that  case  was  the  National 
Wholesale  Druggists'  Association.  It  had  induced  the  manufac- 
turers of  patent  or  proprietary  medicines  to  refuse  to  sell  to 
the  complainant  because  the  latter  refused  to  comply  with  the 
plan  of  the  association  that  the  prices  of  such  articles  as  fixed 
by  the  manufacturers  should  be  kept  up  to  a  certain  standard 
on  resale.  This  was  not  a  combination  among  the  retailers  or 
wholesalers  to  keep  up  prices  generally.  It  was  merely  a  plan 
to  secure  each  manufacturer  the  means  whereby  he  could  prevent 
the  cutting  of  the  price  fixed  by  him  upon  the  resale  of  his 
manufactured  article  by  the  retailer.  It  is  just  as  if  all  the  manu- 
facturers of  patent  medicines  had  agreed  not  to  furnish  such 
articles  to  anyone  who  did  not  keep  up  the  price  on  resale  as 
requested.  Such  an  arrangement  would  not  constitute  a  combi- 
nation of  the  manufacturers  to  fix  prices  generally.  Each  manu- 
facturer would  still  compete  with  the  others  in  the  production 
of  medicines  and  in  prices  to  be  charged.  The  agreement  of  the 
manufacturers  would  merely  operate  to  protect  a  certain  method 
of  marketing  through  the  retailer.  That  method,  as  already 
indicated,23  consists  in  the  manufacturer  doing  a  part  of  the 
selling — namely,  advertising,  standardizing  and  packing  the 
goods.  The  retailer  is  a  mere  distributor  who  collects  the  price. 
To  permit  the  retailers  to  compete  with  each  other  in  the  sale 
price  of  each  manufacturer's  product  destroys  or  disrupts  this 
method  of  marketing.  "When  the  interests  are  all  balanced  it  is 
found  that  the  immediate  advantage  to  a  few  from  permitting 
the  retailers  to  compete  as  to  the  price  of  the  manufactured  arti- 
cle is  offset  by  putting  the  ban  of  illegality  upon  a  method  of 
marketing  which  manufacturers  have  found  effective  in  building 
up  a  business  which  at  all  times  remains  entirely  competitive 

2^— Ante  §§36-38. 

101 


§  106]  THE   COMMON  LAW  [Ch.  6 

with  the  businesses  of  other  manufacturers  operating  in  the  same 
way.  Hence  the  action  of  the  manufacturers  would  not  be  a 
tort. 

The  Klingel  and  Park  and  Sons  cases  each  present  a  situation 
where  an  attempt  is  made  to  force  the  retailers  into  a  combination 
to  keep  up  prices,  but  the  difference  is  this:  the  retailers  in  the 
Klingel  case  are  forced  in  for  the  purpose  of  eliminating  compe- 
tition as  to  prices  generally  in  the  retail  business.  In  the  Park 
&  Sons  case  they  are  forced  in  to  keep  up  the  prices  on  single 
articles  only  as  they  are  fixed  by  individual  manufacturers 
whose  products  are  in  competition  with  each  other.  The  prices, 
therefore,  in  the  Park  &  Sons  case,  which  the  retailer  keeps  up 
arie  in  fact  competitive  prices  established  by  the  competition  of 
manufacturers  each  of  whom  do  business  in  the  same  way 
through  the  retailers. 

§  107.  In  State  v.  Huegin  ^4  three  Milwaukee  newspapers 
agreed  to  refuse  advertising  space  to  any  person  who  paid  the 
higher  price  for  advertising  space  demanded  by  a  fourth  and 
rival  newspaper.  This  agreement  was  held  to  be  a  crime.  A 
fortiori  it  was  a  tort  to  the  fourth  newspaper. 

How  is  this  to  be  reconciled  with  the  freedom  which  business 
rivals  have  to  compete  with  each  other  and  in  so  doing  to  strike  ? 
The  advertisers  were  the  common  employers  of  the  rival  news- 
papers. One  group  of  three  newspapers  threatened  to  strike — 
that  is,  they  threatened  that  they  would  not  take  advertising 
matter  from  those  advertisers  who  dealt  with  the  fourth  and 
rival  newspaper.  "What  is  the  difference  between  this  situation 
and  that  of  a  group  of  employees  striking  against  an  employer  in 
order  to  compel  him  to  discharge  a  rival  group  of  employees?  25 
It  is  submitted  that  there  is  no  difference  unless  we  regard  the 
three  newspapers  as  occupying  a  preponderant  position  in  a 
particular  advertiser's  market.  If  so,  then  we  have  the  strike 
by  a  combination  occupying  a  preponderant  position  for  the  pur- 
pose of  putting  out  of  business  the  only  rival  and  thereby  obtain- 
ing a  monopoly.    The  monopoly  purpose  and  the  preponderant 

24—110  Wis.  189  (1901)  [536]. 
25 — As  in  Allen  v.  Flood,  L.  R. 
[1898]  A.  C.  1  [337]  ante  §96. 

102 


Ch.  6]  COMPETITIVE  METHODS  [§  107a 

position  which  gives  the  power  necessary  to  carry  out  an  exclud- 
ing competitive  practice  are  both  present. 

§  107a.  Tuttle  v.  Buck  28  and  Dunshee  v.  Standard  Oil  Com- 
pany 27  should  be  considered  together. 

In  Tuttle  V.  Buck  a  complaint  was  held  sufficient  which  stated 
in  substance  that  the  defendant,  a  banker  and  man  of  wealth 
and  injBuence  in  the  community,  and  nowise  interested  in  the 
occupation  of  a  barber,  established  a  barber  shop  and  employed 
a  barber  to  carry  on  the  business,  not  for  the  sake  of  entering 
the  business  or  of  profit  to  himself,  but  regardless  of  loss  to 
himself  and  for  the  sole  purpose  of  driving  the  plaintiff  out  of 
his  established  business  as  a  barber.  Here  we  have  a  simple  case 
of  an  act  on  the  part  of  the  defendant  causing  damage  to  the 
plaintiff.  The  only  justification — that  of  freedom  to  compete 
with  a  rival  and  triumph  over  him  by  the  usual  means  of  per- 
suasion, advertising,  service,  and  cutting  prices — was  eliminated 
because  this  was  not,  in  fact,  competition,  it  was  damage  by 
means  of  what  was  competition  in  form  only. 

In  Dunshee  v.  Standard  Oil  Company  the  plaintiff,  a  retail 
dealer,  had  been  accustomed  to  buy  from  the  Standard,  as  whole- 
saler. It  gave  up  this  practice  and  bought  from  independent 
wholesalers.  The  Standard  then  went  into  the  retail  business 
for  the  sole  purpose  of  competing  with  the  plaintiff  and  destroy- 
ing his  business,  which  it  did.  The  methods  used  were  to  seek 
out  the  plaintiff's  customers  and  supply  their  wants  before  the 
plaintiff  reached  them.  It  does  not  appear  that  they  cut  prices 
so  much  as  that  they  gave  a  prompter  service  to  the  plaintiff's 
customers  than  the  plaintiff  could  give.  When  the  plaintiff  had 
been  driven  from  the  retail  business  the  Standard  withdrew  from 
retailing.  The  Standard  Oil  Company  was  held  liable  in  tort 
on  the  authority  of  Tuttle  v.  Buck. 

There  is,  however,  a  wide  difference  between  the  two  cases. 
In  Tuttle  V.  Buck  there  was,  in  fact,  no  real  competitive  situa- 
tion at  all.  What  was  in  form  a  competitive  method  was  used 
as  one  might  use  a  stone  to  throw  at  the  plaintiff's  shop  window. 
In  the  Standard  Oil  Case  the  defendant  was  in  the  oil  business, 

26—107   Minn.    145,   119   N.   W.  27—152  la.  618,  132  N.  W.  371 

946   (1909).  (1911). 

103 


§  107a]  THE  COMMON  LAW  [Ch.  6 

and  in  competition  as  a  wholesaler  with  other  wholesalers.  This 
competition  consisted  in  attempting  to  secure  retailers  as  cus- 
tomers. Certainly  the  Standard  (apart  from  any  question  of 
its  size  and  preponderant  position)  could  have  refused  to  deal 
with  a  retailer  who  dealt  with  independent  wholesalers.  But 
that  step  would  have  been  suicidal  if  the  independents  were 
strong  in  the  locality.  Under  the  circumstances  the  natural  and 
necessary  plan  would  be  for  the  Standard  to  establish  its  own 
retail  business.  That  would  mean  competition  with  other  retail- 
ers; but  if,  by  competing  with  such  retailers  or  with  any  one 
of  them  it  could  induce  the  retailers  again  to  deal  with  the  Stand- 
ard rather  than  the  Independents,  there  would  be  no  further 
need  for  the  Standard  to  carry  on  a  retail  business.  It  could 
legitimately  retire  from  the  retail  branch  of  the  business  and 
become  a  wholesaler  solely. 

So  long  as  we  leave  out  of  consideration  all  question  of  size 
and  preponderant  position  of  the  Standard  Oil  Company  in  the 
oil  business,  it  is  difficult  to  perceive  why  its  acts  were  not  justi- 
fied by  the  social  interest  in  the  freedom  to  compete.  The  mo- 
ment, however,  it  is  assumed  that  the  Standard  Oil  Company 
had  a  preponderant  position  in  the  business,  the  whole  situation 
is  changed.  The  use  of  its  power  to  put  the  independents  out  of 
business,  by  using  a  localized  competitive  effort  against  the  inde- 
pendent wholesalers'  customer,  becomes  an  unfair  and  illegal 
method  of  competition,  and  a  tort  to  the  retailer  damaged.  The 
justification  arising  from  the  social  interest  in  the  freedom  to 
compete  fails. 

The  true  distinction  between  the  two  cases  is  this :  In  Tuttle 
V.  Buck  there  was  no  competitive  struggle  at  all.  In  the  Stand- 
ard Oil  Case  there  was,  but  the  defendant  competitor  occupied 
a  preponderant  position  in  the  business  which  limited  its  free- 
dom to  compete  and  caused  acts  of  competition  to  be  torts  which 
would  not  have  been  if  employed  by  well  matched  units  of  incon- 
spicuous size. 


104 


PART  2 
THE  SHERMAN  ACT 


CHAPTER  VII 

PROBLEM  OF  CONSTRUCTION 

§108.  The  Sherman  Act  has  given  the  Federal  government 
an  opportunity  to  deal  through  its  judicial  department  with 
contracts,  combinations,  and  conspiracies  in  restraint  of  trade, 
monopolies,  and  attempts  to  monopolize.^  The  first  sentence 
of  the  act  declares  certain  contracts,  combinations  and  conspira- 
cies to  be  illegal  generally.    It  reads: 

"Every  contract,  combination  in  the  form  of  a  trust  or  otherwise,  or 
conspiracy,  in  restraint  of  trade  or  commerce  among  the  several  states,  or 
■with  foreign  nations,  is  hereby  declared  to  be  illegal." 

Section  2,  which  speaks  of  monopoly  or  attempts  to  monopolize, 
merely  declares  that 

*' every  person  who  shall  monopolize,  or  attempt  to  monopolize,  or  combine 
or  conspire  with  any  other  person  or  persons,  to  monopolize  any  part  of  the 
trade  or  commerce  among  the  several  states,  or  with  foreign  nations,  shall 
be  deemed  guilty  of  a  misdemeanor. ' ' 

1 — Standard  Oil  Co.  v.  United  ^  prohibited  at  common  law.  I  ask 
States,  221  U.  S.  1  (1910)  [1089]  the  Senator  from  Massachusetts 
("The  debates  show  that  doubt  as  whether  a  monopoly  coming  within 
to  whether  there  was  a  common  law  the  definition  which  he  gives  is  pro- 
of the  United  States  which  governed  hibited  at  common  law.  Mr.  Hoar, 
the  subjects  in  the  absence  of  the  I  so  understand  it.  Mr.  Kenna. 
legislation  was  among  the  influences  Then  why  should  this  bill  proceed 
leading  to  the  passage  of  the  act. ")  to    denounce   that    very    monopoly? 

21  Cong.  Bee.  3151-3152:     "Mr.  Mr.    Hoar.     Because   there   is    not 

Kenna.     If  the  Senator  will  permit  any    common    law    of    the    United 

me,  I  should  like  to  ask  him  whether  States.  * ' 
a  monopoly   such   as  he   defines   is 

105 


§  108]  THE  SHERMAN  ACT  [Ch.  7 

There  is  no  explicit  provision  that  the  acts  of  monopolizing  or 
attempting  to  monopolize  are  generally  illegal.  Nevertheless, 
monopolies  and  attempts  to  monopolize  are  properly  regarded  as 
prohibited.  Whether  this  is  because  monopolies  or  attempts  to 
monopolize  are  really  included  in  the  prohibition  of  the  first  sec- 
tion or  because  they  are  made  illegal  by  the  second  section  is 
immaterial.  Indeed,  the  United  States  Supreme  Court  in  the 
Standard  Oil  Case  suggests  that  the  second  section  may  include 
acts  which  were  not  covered  by  the  first.^ 

§  109.  The  most  important  question  regarding  the  construc- 
tion of  the  Sherman  Act  is  this :  Does  the  prohibition  of  the  act 
apply  to  every  contract,  combination,  and  conspiracy  which  is 
(however  slightly)  in  restraint  of  trade,  according  to  the  literal 
significance  of  those  words;  or  does  it  apply  only  to  every 
illegal  contract,  combination  or  conspiracy  in  restraint  of  trade 
— the  determination  of  what  contracts,  combinations,  and  con- 
spiracies are  illegal,  because  in  restraint  of  trade,  being  left  to 
a  standard  outside  of  the  act?  In  short,  does  the  act  by  its 
terms  prohibit  any  specified  conduct,  or  does  it  simply  induct 
the  federal  courts  into  a  new  federal  jurisdiction  there  to  oper- 
ate and  obtain  results  based  on  some  standard  outside  the  terms 
of  the  act? 

§  110.  There  are  three  ways  of  describing  this  outside  stand- 
ard: It  may  be  called  the  standard  of  the  common  law.  It 
may  be  described  as  the  fiat  of  the  court  itself,  based  upon  its 
collective  judgment  and  reason.  It  may  be  referred  to  as  an 
authority  to  obtain  results,  just  as  a  common  law  court  reached 
them,  i.e.,  by  the  exercise  of  a  certain  technique  of  judicial 
reasoning,  which  includes  a  consideration  of  the  conclusions 
which  other  common  law  courts  have  reached  while  at  the  same 

2 — Standard  Oil  Co.  v.  United  by  embracing  all  attempts  to  reach 
States  221  U.  S.  1  (1910)  [1098]:  the  end  prohibited  by  the  first  sec- 
"In  other  words,  having  by  the  tion,  that  is,  restraints  of  trade, 
first  section  forbidden  all  means  of  by  any  attempt  to  monopolize,  or 
monopolizing  trade,  that  is,  unduly  monopolization  thereof,  even  al- 
restraining  it  by  means  of  every  though  the  acts  by  which  such  re- 
contract,  combination,  etc.,  the  see-  suits  are  attempted  to  be  brought 
end  section  seeks,  if  possible,  to  about  or  are  brought  about  be  not 
make  the  prohibitions  of  the  act  embraced  within  the  general  enu- 
all  the  more  complete  and  perfect  meration  of  the  first  section." 

106 


Ch.  7]  PROBLEM  OP  CONSTRUCTION  [§  111 

time  exercising  the  power  to  examine  the  basis  for  the  results 
which  other  courts  have  obtained  and  possibly  reaching  a  differ- 
ent conclusion.  Characterizing  the  standard  as  that  of  the  com- 
mon law  really  is  not  different  from  describing  it  in  the  othei: 
two  ways,  because  the  Supreme  Court  of  the  United  States  must 
always  remain  the  final  judge  of  what  the  common  law  which  it 
adopts  may  be.  That  introduces  into  the  standard  the  fiat  of 
the  court  or  the  technique  of  judicial  reasoning  used  by  common 
law  courts.  Referring  to  the  standard  as  the  fiat  of  the  court  is 
not  different  in  fact  from  describing  it  as  based  upon  a  certain 
technique  of  judicial  reasoning.  It  is  objectionable  because  it 
suggests  arbitrary  action  by  the  court  instead  of  action  based 
upon  a  recognized  judicial  process  of  reasoning.  The  three 
methods  of  describing  the  standard  outside  the  act,  therefore, 
really  come  to  the  same  thing,  but  the  third  method  is  the  most 
complete  and  the  fairest  way  to  describe  the  standard  referred 
to.  We  may  call  it  for  the  sake  of  brevity  "the  stahdard  of 
reason  which  had  been  applied  at  common  law." 

§  111.  Our  principal  question  of  construction  of  the  Sherman 
Act  then  is:  does  the  act  by  its  terms  prohibit  any  specified 
conduct,  or  does  it  simply  induct  the  federal  courts  into  a  new 
federal  jurisdiction,  there  to  operate  and  obtain  results  in  accord- 
ance with  "the  standard  of  reason  which  had  been  applied  at 
common  law ' '  ?  The  latter  view  has  now  been  accepted,  but  not 
before  the  court  seemed  to  have  committed  itself  to  the  former. 
The  decisions  of  the  United  States  Supreme  Court  will  therefore 
be  examined  ^  with  a  view  to  showing  that  the  results  reached 
are  consistent  with  the  application  of  the  standard  of  the  com- 
mon law  and  the  standard  of  reason  which  had  been  applied 
at  common  law,  and  inconsistent,  in  some  instances  at  least,  with 
the  view  that  the  Sherman  Act  on  its  face  specified  the  conduct 
prohibited  without  reference  to  any  standard  outside  the  act. 
Then  the  dicta  of  the  court  will  be  examined  ^  to  show  how  the 
court,  after  first  taking  the  view  that  the  act  specified  the  conduct 
prohibited  without  reference  to  any  outside  standard,  abandoned 
that  position  and  adopted  the  view  that  the  conduct  prohibited 

3— Po««  chap.  VIII.  4r—Post  chap.  IX. 

107 


§  112]  THE  SHERMAN  ACT  [Ch.  7 

was  to  be  determined  in  accordance  with  the  "standard  of  rea- 
son which  had  been  applied  at  common  law." 

§  112.  The  principal  difficulty  in  applying  the  Sherman  Act 
is,  therefore,  not  strictly  one  of  construing  its  terms,  but  in 
determining  what  acts  in  restraint  of  trade  and  in  the  further- 
ance of  monopoly  are  illegal  according  to  "the  standard  of 
reason  which  had  been  applied  at  common  law."  How  shall  the 
judicial  discretion  which  the  act  vests  in  the  court  to  declare 
some  contracts,  combinations,  and  conspiracies  in  restraint  of 
trade  to  be  legal  and  others  illegal  be  exercised?  The  uncer- 
tainty which  arises  from  the  operation  of  such  a  judicial  func- 
tion is  no  greater  than  that  which  attends  any  new  course  of 
decision  by  common  law  courts.'^ 

5 — It  is  of  course  arguable  that  better  and  will  last  longer  than  if 

the   results   reached   by   the    court,  Congress  had  attempted  a  priori  to 

while  arrived  at  slowly  and  piece-  prohibit  certain  definite  acts,  or  to 

meal,  and  with  considerable  expense  break  up  any  clearly  defined  status. 
to  the  individuals  who  litigate,  are 


108 


CHAPTER  VIII 

THE  DECISIONS  OF  THE  UNITED  STATES  SUPREME 
COURT  UNDER  THE  SHERMAN  ACT 

Section  1 
contracts  accompanying  the  sale  of  a  business 

§  113.  Cincinnati  Packet  Co.  v.  Bay  ^  presents  the  question 
of  the  validity  of  a  restrictive  covenant  accompanying  the  sale 
of  a  business.  The  covenant  is  limited  in  time,  and  not  broader 
than  the  scope  of  the  seller's  business.  It  is  just  the  sort  that 
would  have  been  valid  at  common  law.  It  was  held  valid  under 
the  Sherman  Act.^  If  the  Sherman  Act  prohibited  all  contracts 
which  restrained  trade,  however  slightly,  surely  this  would  have 
been  one  of  those  that  would  be  void. 

§  114.  In  Shawnee  Compress  Co.  v.  Anderson  ^  we  have  a 
plain  case  (so  far  as  the  record  in  the  Supreme  Court  of  the 
United  States  is  concerned)  of  many  leases  with  restrictive  cove- 
nants, all  secured  for  the  purpose  of  creating  a  combination  and 
with  the  intent  to  monopolize  the  business.  At  common  law 
this  would  have  been  an  illegal  attempt  at  monopoly.  It  was 
held  illegal  under  the  Sherman  Act. 

Section  2 

exclusive  contracts  of  sale  and  purchase 

§115.  Continental  Wall  Paper  Co.  v.  Voight*  is  of  little 
value  so  far  as  the  application  of  the  Sherman  Act  is  concerned. 

1 — ^200  TJ.  S.  179   (1906)    [781].  collateral  to  such  sale;   and  where 

2-. — United    States    v.    Trans-Mis-  the  main  purpose  of  the  whole  con- 

souri   Freight   Association,    166    U.  tract  is  accomplished  by  such  sale, 

8.  290  (1897)   [878]   ("A  contract  might  not  be  included  within   the 

which  is  a  mere  accompaniment  of  letter   or   spirit   of   the   statute   in 

the    sale     of     property     and    thus  question.") 

entered  into  for  the  purpose  of  en-  3—209  U.  S.  423    (1908)    [785]. 

hancing    the    price    at    which    the  4—212  U.  S.  227  (1909). 

vendor  sells  it,  which,  in  effect,  is 

109 


§  115]  THE  SHERMAN  ACT  [Ch.  8 

The  case  arose  on  demurrer  to  a  defense  which  set  out  a  com- 
bination of  98  per  cent  of  the  manufacturers  of  wall  paper  which 
entered  into  exclusive  contracts  with  jobbers  and  retailers  all 
over  the  United  States.  This  made  in  fact  a  combination  between 
the  manufacturers,  jobbers,  and  retailers  with  the  intent  to  mo- 
nopolize and  exclude  from  the  business  everybody  else.  The  case 
is  so  plainly  one  of  an  attempt  to  monopolize  which  would  have 
been  illegal  at  common  law  that  the  court  spends  only  a  few 
lines  in  stating  in  substance  that  it  assumes  the  illegality  of  the 
combination.^ 

Section  3 
contracts  to  keep  up  the  price  on  resale 

§116.  Dr.  Miles  Medical  Co.  v.  Park  &  Sons  Co.^  might 
appear  to  be  a  case  where  the  supreme  court  had  held  contracts, 
or  a  combination,  to  be  in  violation  of  the  Sherman  Act  which 
would  not  have  been  invalid  at  common  law.'^  It  might  be  used, 
therefore,  to  indicate  that  the  Sherman  Act  was  broader  than 
the  common  law.  But  this  is  not  so.  The  Supreme  Court  of  the 
United  States  is  the  sole  judge  of  what  is  the  common  law  which 
it  recognizes  as  the  standard  to  be  used  in  applying  the  Sherman 
Act.  It  may  have  determined,  as  it  had  a  right  to  do,  what  it 
considered  to  be  the  common  law  applicable,  and  that  this  com- 
mon law  required  the  result  reached  in  the  Dr.  Miles  case. 

In  the  same  way,  if  the  Supreme  Court  of  the  United  States 
should,  operating  under  the  Sherman  Act,  hold  that  a  contract 
by  the  purchaser  of  a  mule  not  to  use  any  currycombs  on  it 
except  those  furnished  by  the  seller  was  illegal ;  that  a  contract 
by  the  purchaser  of  a  picture  not  to  use  any  cleaning  or  preserva- 
tive material  upon  it  except  that  furnished  by  the  seller  was 
illegal ;  and  that  similarly  a  contract  by  the  purchaser  or  licensee 
of  a  patented  article  that  he  would  use  with  it  only  unpatented 
accessories  sold  by  the  seller  or  licensor  was  illegal,^  we  should 

5— [820,  821].  7— Jnie  §  32. 

&— 220  U.  S.  373   (1911)    [838].  8— See  ante  §§41  et  seq. 
See  ante   §§32  et  seq.,  where  this 
case  is  fully  dealt  mth. 

110 


Ch.  8]  DECISIONS  OF  SUPREME  COURT  [§  117 

not  have  a  decision  that  the  Sherman  Act  is  broader  than  the 
common  law,  but  merely  that  the  United  States  Supreme  Court 
is  the  final  judge  of  what  the  common  law,  which  it  purports 
to  follow,  may  be. 

Section  4 

combinations 

Of  Transportation  Units 

§117.  The  basis  for  the  decisions  in  the  Trans-Missouri 
Freight  Association  Case^  and  the  Joint  Traffic  Association 
Case  ^^  is  clear.  The  railroads  operated  under  special  franchises. 
The  public  was  excluded  from  the  business  in  general.  If  two 
were  let  into  the  business,  the  public  policy  was  made  plain  that 
they  should  compete,  and  as  all  the  rest  of  the  public  was 
excluded,  the  two  had  a  monopoly  except  for  the  competition 
between  themselves.  When,  therefore,  they  united,  they  not 
only  violated  the  declared  public  policy  in  favor  of  competition, 
but  they  achieved  an  actual  monopoly.  All  combinations  of 
public  utilities  which  can  operate  only  under  special  franchises 
so  that  the  public  generally  is  excluded  from  the  business,  are 
therefore  illegal  per  se  at  common  law.  Hence,  such  combina- 
tions are  illegal  per  se  under  the  Sherman  Act  where  interstate 
or  foreign  commerce  is  involved.  So  far,  therefore,  as  railroads 
are  concerned,  the  proposition  is  literally  true,  that  under  the 
Sherman  Act  every  restraint  of  trade  by  combination  and  every 
attempt  to  monopolize  by  combination  is  illegal.  This,  however, 
is  not  because  of  any  language  of  the  Sherman  Act,  but  because 
of  the  standard  of  the  common  law  or  the  standard  of  the  rule 
of  reason  which  the  Sherman  Act  adopts. 

This  ground  for  the  decision  in  the  Trans-Missouri  Freight 
Association  case  appears  rather  vaguely  in  the  opinion  of  the 
court. ^1  If  the  ease  had  been  put  squarely  and  solely  upon  this 
ground  much  subsequent  difficulty  would  have  been  avoided. 

9—166  U.  8.  290   (1897)    [862].  11— [881,  882,  883,  884,  885]. 

10—171  U.  8.  505   (1898)    [765, 
904]. 

Ill 


§  118]  THE  SHERMAN  ACT  [Ch.  8 

§  118.  The  Northern  Securities  case  ^^  is  to  be  supported  on 
the  same  basis  as  the  Trans-Missouri  Freight  Association  and 
Joint  Traffic  Association  cases.  The  actual  decision  is  therefore 
confined  to  the  cases  where  public  utilities  which  must  have 
special  franchises  under  which  to  operate  are  combined.  In  this 
view  it  would  make  no  difference  whether  the  combination  were 
by  a  holding  corporation  or  an  individual.  The  suggestion  of 
Mr.  Justice  Brewer  ^^  and  of  Mr.  Justice  Holmes  ^^  that  an  in- 
dividual could  have  bought  up  the  stock  control  of  both  roads 
cannot  be  sustained. 

The  opinion  of  the  majority  contains  no  suggestion,  however, 
of  the  proper  basis  for  the  result.  It  serves  up  cases  of  combi- 
nations of  coal  companies,  trading  and  manufacturing  compan- 
ies, ^^  as  if  the  court  were  entitled  to  treat  combinations  of  rail- 
way corporations  operating  under  special  franchises  in  exactly 
the  same  way  as  it  was  combinations  of  trading  and  manufac- 
turing corporations.  Furthermore,  much  language  in  the  opinion 
will  justify  the  inference  that  the  court  was  not  only  making 
no  distinction  between  combinations  of  public  utilities  using 
special  franchises,  and  trading  and  manufacturing  units,  but 
was  asserting  that  no  combination  which  eliminated  competition 
between  the  units  would  be  legal.  It  was  this  apparent  position 
on  the  part  of  the  court  that  raised  the  storm  of  protest  against 
the  Northern  Securities  Case.  Even  Mr.  Gray  ^^  insisted  that 
the  court  had  in  fact  held  that  the  elimination  of  competition 
between  any  units  engaged  in  interstate  commerce  would  be 
illegal.  ^"^ 

12 — 193  IT.  S.  197  (1904)   [910].  each  a  cart  and  one  horse.     Their 
13 — [p.  948].  occupation  is  the  carrying  of  eggs 
14 — [p.  960].  and  chickens  from  the  neighboring 
15 — [pp.  928  to  932].  farmers  to  a  market  town  over  the 
16 — John    C.    Gray,    the    Merger  New  York  border.     They  agree  to 
Case,  17  Harv.  L,  Rev.  474.  form  a  corporation  under  the  name 
17 — Mr,   Gray  put   the  following  of    the    Interstate    Poultry    Traffic 
as  containing  all  the  essential  ele-  Association.     The  only  capital  they 
ments    of    the    Northern    Securities  turn  in  consists  of  their  horses  and 
Case  with  the  dramatic  elements  left  carts,    except    a    few    dollars    con- 
out    and    picturesque    ones    substi-  tributed  to   pay  for  their   charter, 
tuted:  Are    they    criminals    liable    to    be 
"Three  Jerseymen,  who  we  will  fined  $5,000  apiece  and  imprisoned 
call  Morgan,  Hill  and  Lamont,  own  for  a  year?" 

112 


Ch.  8]  DECISIONS  OP  SUPREME  COURT  [§  119 

All  the  difficulties  with  the  Northern  Securities  Case  and  all 
the  grounds  for  objection  to  it  are  immediately  eliminated  when 
it  is  observed  that  the  essential  feature  of  the  ease  was  that  the 
railroads  combined  were  operating  under  special  franchises  which 
gave  the  competing  roads  together  a  monopoly  as  against  the 
rest  of  the  public,  and  also  indicated  a  public  policy  that  the 
railroads  which  had  the  special  franchises  to  go  into  the  railroad 
business  should  compete.  It  is  not  to  be  expected  that  Mr.  Gray 
would  disagree  with  the  result  of  the  Northern  Securities  Case 
based  upon  this  fact.  Without  this  element  the  case  put  by 
Mr.  Gray  concerning  the  three  Jerseymen  certainly  presented 
no  violation  of  the  Sherman  Act  and  this  conclusion  is  not 
at  all  inconsistent  with  the  result  reached  in  the  Northern 
Securities  Case.^^ 

§  119.  The  Union  Pacific  Case  ^^  follows  the  Trans-Missouri 
Freight  Association  and  Joint  Traffic  Association  eases  and  the 
Northern  Securities  Case.  It  holds  that  the  mere  union  of  com- 
peting railroad  corporations  is  illegal. 

The  court  20  emphasizes  the  application  of  this  rule  to  rail- 
roads, but  why  a  difference  should  be  made  between  railroads 
and  trading  and  manufacturing  units  is  not  in  the  least  hinted 
at.  It  is  submitted  that  the  fact  that  the  railroads  can  be  oper- 
ated only  under  special  franchises  and  that  the  public  generally 
is  thus  excluded  from  the  business  furnishes  the  true  basis  for 
the  difference. 

The  competition  between  the  Union  Pacific  and  the  Southern 
was  very  much  less  conspicuous  than  the  competition  between 
the  Union  Pacific  and  the  Northern  Pacific.  The  Union  Pacific 
ran  from  Omaha  to  Ogden  and  from  Ogden  to  San  Francisco 
over  the  Southern  Pacific's  own  line.    It  also  ran  from  Ogden 

18 — The    majority    regarded    the  Whether  the  interstate  commerce 

formation   of   the   Northern   Secur-  act  excluded  the  railroads  from  the 

ities  Company  and  its  acquisition  of  Sherman  Act  was  a  question  fully 

stock    as    affecting   interstate   com-  argued  and  determined  in  the  Trans- 

merce  so  that  it  might  be  brought  Missouri    Freight    Association    and 

within    the    Sherman     Act.      Four  Joint  Traffic  Association  cases, 

judges  dissented  on  this  proposition.  19—226    U.    S.    61,    470    (1912) 

No  comment  is  made  on  this  phase  [9811. 

of  the  case.  20— [p.  987]. 

Kales  Sum.  R.  of  T.-— 8  113 


§  119]  THE  SHERMAN  ACT  [Ch.  8 

to  Portland.  From  Portland  to  San  Francisco  it  operated  by 
steamer.  The  Southern  Pacific  ran  from  New  Orleans  to  San 
Francisco  via  Los  Angeles.  The  court  assumed  that  a  line  ship- 
ping from  New  Orleans  in  the  Mississippi  Valley  competed  with 
a  line  shipping  from  Omaha.  That  is  to  say,  shipments  to  the 
Pacific  from  a  large  area  east  and  west  of  the  Mississippi  might 
go  as  conveniently  via  New  Orleans  as  via  Omaha.  Hence, 
though  these  terminals  were  1,000  miles  apart  or  more,  they 
were  competitive.  Then  the  Supreme  Court  found  the  principal 
competition  at  the  other  end  of  the  line  to  be  between  the  South- 
em  Pacific  to  San  Francisco  and  the  Union  Pacific  to  San  Fran- 
cisco via  the  Union  Pacific's  own  line  to  Portland,  and  then  by 
water  to  San  Francisco. 

It  has  been  suggested  that  as  a  matter  of  fact  both  lines  were 
competitive  to  San  Francisco  direct  by  rail  because  the  connection 
between  the  Union  Pacific  and  the  Southern  Pacific  to  San  Fran- 
cisco would  be  compelled  by  the  Interstate  Commerce  Commis- 
sion. It  has  been  suggested  also  that  both  lines  were  competitive 
so  far  as  foreign  trade  was  concerned  because  each  reached  the 
Pacific  coast  from  the  Mississippi  Valley  and  it  was  immaterial 
for  the  purposes  of  foreign  commerce  whether  they  reached  the 
same  port  or  not. 

§  120.  The  court  in  the  Standard  Oil  Case  21  affirms  the  sound- 
ness of  the  result  reached  in  the  Joint  Traffic  Association  cases.22 
It  refers  to  "the  nature  and  character  of  the  contract  creating 
.  .  .  a  conclusive  presumption  which  brought  them  within 
the  statute."  This  leaves  much  to  be  desired  in  the  way  of 
explaining  why  there  should  be  a  "conclusive  presumption"  mak- 
ing a  combination  of  railroads  illegal,  while,  when  manufacturing 
and  trading  corporations  combined  or  occupied  a  preponderant 
position  in  the  market,  there  was  only  a  prima  facie  presumption 
which  would  bring  them  within  the  prohibition  of  the  act.  It  is 
submitted  that  the  explanation  already  offered  23  indicates  the 
difference. 

§  121.  In  United  States  v.  Terminal  Railroad  Association  of 
St.  Louis  2*  it  was  held  that  a  combination  of  all  the  railroad 

21—221  U.  S.  1    (1910)    [1072].  23— Ante  §§51,  117. 

22— [1102].  24—224  U.  S.  383   (1912)    [962]. 

114 


Ch.  8]  DECISIONS  OF   SUPREME  COURT  [§124 

terminal  facilities  of  St.  Louis  under  the  control  of  less  than 
all  the  companies  under  compulsion  to  use  them  was  illegal.  At 
the  same  time  the  court  insisted  that  the  combination  of  all 
such  facilities  under  the  control  of  all  the  companies  under  com- 
pulsion to  use  them  and  open  to  the  use  of  all  on  equal  terms 
would  be  legal.  Such  a  combination  it  was  declared  could  only 
further  competition  and  commerce.  It  could  not  restrain  or 
suppress  either.  Hence,  the  court  ordered  a  decree  of  dissolu- 
tion unless  the  defendant  underwent  a  reorganization,  as  outlined 
by  the  court,  which  would  make  it  a  combination  of  all  the 
terminal  facilities  subject  to  the  control  of  all  the  railroads  under 
compulsion  to  use  them  and  without  discrimination  against  any. 
§  122.  In  United  States  v.  Reading  Company  ^s  the  court  held 
illegal,  in  accordance  with  the  principle  of  the  Northern  Securi- 
ties Case,  a  combination  of  competing  railroads.  The  court  also 
held  the  combination  to  be  illegal  under  the  principle  established 
by  the  Standard  Oil  Case,^^  because  it  was  a  combination  of 
anthracite  coal  companies  in  a  limited  anthracite  coal  field, 
together  with  the  railroads  serving  the  mines,  which  occupied  a 
preponderant  position  in  the  anthracite  coal  business  and  had 
the  actual  intent  and  purpose  to  exclude  others  from  the  business 
or  suppress  their  competition  and  thereby  secure  a  monopoly. 
The  facts  which  proved  this  were  intricate  and  voluminous.  The 
principle  applied  is  clear. 

Of  Trading , and  Manufacturing  Units 

§123.  The  case  of  Addyston  Pipe  &  Steel  Co.  v.  United 
States  27  has  already  been  fully  dealt  with.^s  The  opinion  in 
the  United  States  Supreme  Court  makes  the  case  one  where  the 
preponderant  position  in  the  business  as  a  result  of  combination 
by  contract  caused  the  combination  to  be  illegal.  Whether  this 
was  because  size  and  preponderant  position  by  combination  were 
per  se  illegal,  or  whether  there  was  an  unrebutted  pryma  facie 
inference  of  illegality,  does  not  appear. 

§124.  In  Swift  &  Company  v.  United  States  ^9  the  decree 
attacked  was  entered  upon  demurrer  to  the  bill,  and  the  bill  made 

25—226  U.  8.  324  (1912)  [1004].  27—175  U.  S.  211  (1899)  [1047]. 

26— Post    §§127    et    seq.;    ante  28— Ante  §66. 

§§49  et  seq.  29—196  U.  S.  375  (1905)  [1056]. 

115 


§  124]  THE  SHERMAN  ACT  [Ch.  8 

a  very  plain  case  of  excluding  purposes  and  preponderant  posi- 
tion on  the  part  of  the  defendants.  The  preponderant  position  is 
set  out.  The  defendants  had  control  of  about  six  tenths  of  the 
entire  trade.  The  illegal  practices  are  set  out.  There  was  a 
secret  arrangement  on  the  part  of  the  units  in  the  combination 
not  to  bid  against  each  other.  There  were  also  rebates  and  an 
assumption  of  control  ^o  of  the  market  by  fixing  prices. 

§  125.  In  United  States  v.  Kissel  ^^  the  only  question  was  the 
suflSciency  of  a  plea  of  the  Statute  of  Limitations.  It  was  suffi- 
cient if  the  acts  constituting  the  offense  were  continuing.-  It  was 
held  that  the  acts  were  continuing.  The  case  is  of  some  value 
as  making  clear  that  in  cases  of  illegal  combinations,  restraints 
of  trade  and  attempts  to  monopolize,  the  combinations  created 
not  only  may,  but  usually  are,  continuing  wrongs.  The  court 
apparently  had  nothing  to  do  with  whether  the  particular  scheme 
in  question  practiced  was  an  unlawful  or  unfair  method  of  com- 
petition or  not. 

§  126.  In  Standard  Oil  Co.  v.  United  States  ^2  we  have  a  case 
where  a  manufacturing  and  trading  unit  carrying  on  a  business 
which  was  normally  free  to  all,  occupying  a  preponderant  posi- 
tion in  that  business,  had  the  purpose  to  use  its  power  to  exclude 
others,  and  did  in  fact  do  so  by  illegal  and  unfair  methods  of 
competition.  This  case,  together  with  the  Tobacco  Case,^^  stands 
for  the  proposition  that  where  these  elements  are  presented  the 
unit  in  question  is  an  illegal  attempt  to  monopolize  and  an  illegal 
restraint  of  trade. 

That  the  business  in  question  was  normally  free  to  all  to  engage 
in  appears  from  the  fact  that  it  was  a  manufacturing  and  trading 
business — the  manufacturing  of  refined  oil  and  its  sale  and 
distribution.  It  was  not  a  business  depending  upon  special 
franchises.^* 

30 — Ante  §  70.  ating  under  special  franchises,  the 

31—218  U.  S.  601  (1910)  [1068].  rule  applicable  in  the  Northern  Se- 

32—221  U.  S.  1   (1910)    [1072].  curities  Case  might  also  have  been 

33 — United    States    v.    American  invoked.     But   the   opinion    of   the 

Tobacco  Co.,  221  TT,  S.  106  (1910).  court    does   not    suggest    any    such 

34 — ^It  has  been  suggested  that  aa  basis    for    its    decision,    and   hence 

there  were  included  in  the  Standard  this  aspect  of  the  ease  is  ignored. 

Oil  Company  many  pipe  lines  oper- 

116 


Ch.  8]  DECISIONS  OF  SUPREME  COURT  [§  126 

As  to  the  size  of  the  unit :  The  evidence  clearly  showed  that 
the  Standard  Oil  Company  of  New  Jersey  held  a  preponderant 
position  in  the  manufacturing  and  distribution  of  oil.  There  is 
a  difficulty,  however,  in  finding  any  passage  in  the  opinion 
which  describes  the  percentage  of  the  total  business  which  the 
Standard  Oil  did. 

It  may  be  assumed  that  there  was  ample  evidence  of  illegal 
and  unfair  methods  of  competition,  particularly  in  the  early 
stages  of  the  Standard  Oil  Company,  Curiously  enough,  how- 
ever, the  opinion  of  the  court  is  very  weak  in  setting  forth  any 
such  methods.  The  passages  which  purport  to  deal  with  them  ^s 
contain  a  great  many  words,  which  give  an  impression  of  weight 
by  their  sound;  but  a  careful  attenfion  to  what  is  said  must 
leave  the  reader  in  doubt  as  to  whether  any  of  the  suggested 
methods  were  illegal  or  unfair  methods  of  competition.  One  is 
impressed  by  the  fact  that  in  various  forms  the  Chief  Justice 
has  simply  reiterated  the  fact  that  the  Standard  Oil  Company 
was  large  and  successful.  What  he  says  boils  down  to  size  and 
success. 

The  whole  case  against  the  Standard  Oil  Company  as  made  in 
the  opinion  of  the  court  seems  to  rest  upon  the  defendant's 
attempt  to  monopolize  by  excluding  others  from  the  business. 
It  is  noticeable,  however,  that  while  the  court  talks  about  the 
intent  to  monopolize  it  does  not  specify  that  that  intent  is  to  be 
carried  out  by  the  use  of  illegal  and  unfair  methods  of  competi- 
tion. Yet  that  must  be  the  assumption.  An  intent  to  succeed 
in  business  over  rivals  by  the  achievement  of  greater  efficiency 
is  not  a  crime  or  illegal  at  common  law.  The  intent  to  monopolize, 
in  the  opinion  of  the  court,  arises  only  as  a  prima  facie  inference 
from  size.  The  Chief  Justice  has  used  a  great  many  and  some 
very  long  sentences,  but  every  time  they  are  read  carefully  it  will 
be  found  that  they  only  assert  that  the  Standard  Oil  Company 
was  an  organization  of  monstrously  large  size,  and  from  this  size, 
constantly  referred  to  in  various  ways,  the  intent  to  monopolize 
is  discovered.  Nevertheless,  it  is  said  constantly  that  the  intent 
to  monopolize  arises  from  size  only  as  a  prima  facie  inference  or 
presmnption.88 

35— [1110,  1111].  [1108-1109]   and  about  the  middle 

36 — These     passages     occur     at      of  [1111]. 

117 


§  127]  THE  SHERMAN  ACT  [Ch.  8 

§  127.  The  character  of  the  organization  of  the  Standard  Oil 
Company  of  New  Jersey  with  respect  to  whether  it  was  a  com- 
bination of  competing  units  or  even,  properly  speaking,  a  com- 
bination at  all,  requires  attention. 

The  Standard  Oil  Company  of  New  Jersey  as  reorganized  in 
1899  was  the  precise  point  of  attack  by  the  government.  It 
was  that  organization  which  was  dissolved  by  the  decree.  Of 
course,  the  decree  did  not  permit  the  older  organizations  to  step 
into  the  place  of  the  Standard  Oil  of  New  Jersey,  but  required 
a  dissolution  which  created  new  operating  units. 

The  Standard  Oil  Company  of  New  Jersey  as  organized  in 
1899  was  plainly  not  a  combination  of  competing  units.  True, 
they  may  have  competed  years  ago  and  before  the  Sherman  Act ; 
but  when  the  Sherman  Act  was  passed  in  1890  they  were  all — 
or  substantially  all — already  combined  in  the  Standard  Oil  Trust 
and  had  ceased  to  compete,  and  the  combination  was  legal  so  far 
as  the  federal  law  was  concerned.  It  follows,  therefore,  that  the 
Standard  Oil  of  New  Jersey  was  a  combination  of  non-competing 
units  which  never  had  competed  since  the  Sherman  Act  was 
passed.  The  elimination  of  competition  between  the  units  com- 
bined before  the  Sherman  Act  could  not  be  urged  as  a  ground 
of  illegality  under  the  Sherman  Act.  The  legality  or  illegality 
of  the  Standard  Oil  Company  of  New  Jersey  must  have  been 
determined  with  reference  to  a  single  comhiTiation  of  non-com- 
peting units. 

One  may  even  doubt  whether  tlfe  Standard  Oil  of  New  Jersey 
was,  properly  speaking,  a  combination  at  all.  When  the  Stand- 
ard Oil  Trust  was  formed  iu  1882  it  was  perfectly  legal  so  far 
as  the  federal  law  was  concerned.  It  represented  an  effort  at 
organization  in  larger  units  than  formerly,  in  accordance  with 
the  demands  of  the  industrial  revolution  which  was  in  progress. 
If  then  it  was  not  illegal — and  it  was  not  so  far  as  the  federal 
law  was  concerned  since  there  was  no  Sherman  Act — ^surely  it 
must  be  regarded  as  a  normal  and  proper  method  of  creating 
a  unit  in  the  industrial  world.  Hence  at  the  time  of  the  Sher- 
man Act,  the  Standard  Oil  Trust  was  a  normal,  legal,  and  proper 
industrial  unit.  Only  in  a  very  popular  sense  was  it  still  a 
combination.  In  dealing  with  it  under  the  Sherman  Act  the 
court  was  simply  bringing  within  its  jurisdiction  an  industrial 

118 


Ch.  8]  DECISIONS  OF  SUPREME  COURT  [§  129 

unit  which  was  in  existence  and  with  respect  to  the  legality  of 
the  original  organization  of  which  there  could  be  no  question. 

§  128.  The  Standard  Oil  case,  therefore,  seems  actually  to 
hold  that  a  unit  which  started  as  entirely  legal  and  which  grew  as 
its  business  succeeded  until  it  held  a  preponderant  position  in 
the  business,  but  which  all  the  time  had  the  intent  to  monopolize, 
would  be  illegal  when  it  came  to  occupy  the  preponderant  posi- 
tion. In  short,  it  appears  actually  to  hold  that  any  unit,  however 
formed,  which  secures  a  perponderant  position  by  means,  how- 
ever legal  and  proper,  and  which  then  acquires  the  intent  to 
monopolize,  becomes  illegal.  You  do  not  need  combination.  You 
do  not  need  a  unit  which  is  organized  in  a  particular  way.  You 
do  not  even  need  the  elimination  of  competition  between  the 
units.  You  do  not  need  abnormal  growth,  so  called.  "What 
you  do  need  is  merely  a  preponderant  position  in  the  business 
coupled  with  an  intent  to  monopolize. 

If  A,  for  instance,  as  an  individual,  manufactured  low-priced 
automobiles ;  and  had,  by  a  process  of  the  extraordinary  growth 
of  business,  secured  a  preponderant  position  in  the  manufacture 
and  sale  of  such  cars;  and  if  he  should  then,  as  an  individual, 
start  to  use  his  power  to  exclude  others  by  illegal  and  unfair 
methods  of  competition,  or  if  there  could  be  brought  home  to 
him  the  intent  to  monopolize  by  any  other  means,  he  would  be 
carrying  on  business  in  violation  of  the  Sherman  Act.  One  does 
not  quite  see  how  equity  could  dissolve  him ;  but  indictment,  and 
injunction  against  the  committing  of  acts,  would  probably  be 
ample  remedies.  Would  a  court  of  equity  undertake  to  limit 
the  size  of  his  business  and  its  output  so  as  to  reduce  it  to  a 
unit  not  occupying  a  preponderant  position?  Could  it  split  up 
his  business  and  require  parts  of  it  to  be  sold?  There  are  diffi- 
culties here,  but  the  main  proposition  that  the  individual  could 
violate  the  Sherman  Act  is  sound. 

§129.  In  United  States  v.  Pacific  and  Arctic  Railway  and 
Navigation  Company  ^7  the  first  and  second  counts  of  the  indict- 
ment were  sustained;  They  charged  a  combination  between  a 
steamship  company,  a  wharves  company,  and  a  railroad  which 
together  occupied  a  preponderant  position  in  the  transportation 

37—228  U.  S.  87  (1913)    [1035]. 

119 


§  129]  THE  SHERMAN  ACT  [Ch.  8 

service  from  ports  in  the  United  States  to  places  in  Alaska. 
This  combination  had  the  actual  purpose  to  exclude  others  from 
this  transportation  service  and  to  secure  a  monopoly,  and 
attempted  to  carry  out  this  purpose  by  unfair  methods  of  com- 
petition. The  carriers  were  connected  and  not  competing,  and 
there  was  therefore  no  application  of  the  principle  of  the  North- 
em  Securities  case ;  ^^  but  the  combination  used  its  combined 
powers  to  exclude  all  other  companies  serving  any  part  of  the 
route  in  question.  The  railroad  fixed  local  rates  higher  than 
the  railroad's  pro  rata  of  the  through  rate  which  it  made  to 
members  of  the  combination.  The  railroad  then  refused  any 
through  rate  to  steamship  lines  outside  the  combination.  The 
wharves  company  charged  more  for  freight  if  shipped  by  a  line 
outside  of  the  combination  than  it  did  for  freight  shipped  on  a 
line  in  the  combination;  and  the  wharves  company  had  a  mon- 
opoly of  the  wharfing  facilities  at  the  connecting  port.  The 
facts  set  up  in  the  indictment  clearly  brought  the  case  within 
the  principle  of  the  Standard  Oil  and  Tobacco  cases.^^ 

Section  5 

competitive  methods 

§  130,  In  Anderson  v.  United  States  *"  a  rule  of  the  Trader's 
Live  Stock  Exchange  of  Kansas  City  which  provided  that  its 
members  should  not  deal  with  any  other  yard  trader  unless  he 
was  a  member  of  such  exchange  was  sustained.  Clearly  the 
Trader's  Exchange  was  competing  with  outside  traders.  It  was 
trying  to  gain  something  by  concerted  action  in  refusing  to  deal 
with  them.  It  seems  to  have  been  assumed  that  the  exchange 
was  not  attempting  primarily  to  force  the  outside  traders  out 
of  business  so  as  to  secure  the  entire  business  for  the  members 
of  the  exchange,  but  was  merely  trying  to  hamper  the  outside 
traders  sufficiently  to  bring  them  into  the  exchange  where  they 
would  be  subjected  to  standards  of  conduct  which  were  assumed 
to  be  highly  desirable. 

38— Ante  §§117,  118.  40—171  U.  S.  604  (1898). 

39— Post     §§127    et    seq.;    ante 
§§49  et  seq. 

120 


Ch.  8]  DECISIONS  OP  SUPREME  COURT  [§  132 

§131.  In   Montague   v.   Lowry*^    we   have   an   exclusive 

arrangement  between  the  tile  dealers  of  San  Francisco  and  the 
manufacturers.  The  manufacturers  were  to  sell  only  to  those 
tile  dealers  in  San  Francisco  and  to  no  others.  The  plaintiffs 
were  independent  tile  dealers  in  San  Francisco  who  were  injured 
because  they  could  not  buy  from  the  manufacturers  who  were  in 
the  association.  The  plaintiffs  had  a  verdict  of  $500  and  a 
judgment  under  the  Sherman  Act  for  $1,500.    This  was  affirmed. 

This  case  is  subject  to  the  comment  that  it  does  not  appear 
clearly  how  large  the  combination  of  manufacturers  was.  Did 
it  occupy  a  preponderant  position  in  the  tile  manufacturing  busi- 
ness? Probably  it  did.  Very  likely  the  evidence  disclosed  the 
fact,  but  as  it  is  a  fact  of  the  very  utmost  importance  it  is  strange 
that  the  opinion  of  the  court  lays  no  emphasis  upon  it.^^  if 
such  an  arrangement  as  this  had  been  made  with  three  manu- 
facturers out  of  fifty,  it  would  have  been  entirely  unobjection- 
able. The  plaintiffs  would  then  have  had  ample  opportunity 
to  secure  all  the  tile  they  wanted.  It  is  only  when  the  combi- 
nation occupies  a  preponderant  position  and  begins  to  connect 
up  with  collective  units  of  dealers  having  also  a  preponderant 
position  in  the  local  situation  that  the  prima  facie  inference  of 
intent  to  use  the  power  of  the  combination  to  exclude  others 
by  unlawful  and  unfair  methods  of  competition  arises,  and  the 
damage  to  the  plaintiff  caused  by  the  exclusive  contracts  becomes 
a  tort  according  to  the  common  law. 

§  132.  In  Eastern  States  Retail  Lumber  Dealers  Association 
V.  United  States  ^^  the  Government  obtained  an  injunction 
restraining  an  association  of  retail  lumber  dealers  from  circu- 
lating among  its  members  lists  of  wholesalers  who  were  attempt- 
ing to  sell  directly  to  consumers.*^  It  was  conceded  that  the 
circulation  of  these  lists  was  for  the  purpose  of  systematically 

41—193  U.  S.  38  (1904)   [1049].  43—234  TT.  S.  600  (1914)  [1157]. 

42 — Was  this  because  Mr.  Justice  44 — It  would  seem  that  this  was 

Peckham,  who  wrote  the  opinion  of  the  only  relief  obtained.   See  United 

the   court,   was   still  under  the  in-  States     v.     Eastern    States    Eetail 

fluence  of  his  dicta  in  the  Trans-  Lumber    Dealers    Ass'n,    201    Fed. 

Missouri    Freight    Association    and  581  (1912). 
Joint  TraflSc  Association  cases  and 
therefore   was   declining   to   make 
size  an  element  of  illegality? 

121 


§  132]  THE  SHERMAN  ACT  [Ch.  8 

causing  the  retailers  not  to  deal  with  such  wholesalers.  What 
objection  was  there  to  this  ?  Two  groups  of  lumber  dealers  were 
in  competition — the  wholesalers  and  the  retailers.  Both  were 
competing  for  the  trade  of  the  consumer.  The  wholesalers  were 
really  trying  to  break  into  the  retail  trade.  It  is  of  course  in 
the  public  interest  that  they  should  compete.  Very  well,  how 
may  this  competition  be  carried  on?  Is  competition  in  price 
the  only  method  of  competition  which  the  courts  will  permit? 
Certainly  not.  It  happened  that  the  retailers  bought  from  the 
wholesalers.  May  not  retailers  then  cease  buying  from  the 
wholesalers  for  the  purpose  of  defeating  them  in  this  competitive 
struggle?  "Would  not  such  an  act  be  exactly  the  same  as  the 
act  of  striking  by  employees  to  compel  their  employer  to  refuse 
to  recognize  a  rival  group  of  employees  working  for  the  same 
employer  and  by  this  meanj  enable  the  strikers  to  triumph  in 
their  competitive  struggle  with  the  rival  group  of  workers?  If 
the  employer  started  to  work  on  his  own  job  with  his  workmen 
and  they  struck  to  prevent  him,  the  situation  would  be  pre- 
cisely the  same  as  the  action  by  the  Retail  Lumber  Dealers. 
Such  acts  of  striking,  whether  by  employees  against  an  em- 
ployer *s  or  a  Retail  Dealers'  Association  against  the  whole- 
salers,^^ are  not  by  themselves  illegal.  Such  acts  have  been 
regularly  held  to  be  legitimate  methods  of  competition.  They 
do  not  become  illegal  simply  because  they  succeed  in  defeating 
the  rival.  Why?  Because  the  public  interest  is,  on  the  whole, 
better  served  by  permitting  this  freedom  of  action  to  compete 
and  the  triumph  of  some  competitors  over  others  than  it  is  by 
calling  the  strike  in  and  of  itself  an  unfair  method  of  competi- 
tion and  illegal  and  tortious  and  by  this  means  maintaining  the 
status  quo  of  existing  competition. 

§  133.  The  situation  is  altered  as  soon  as  one  can  say  that  the 
strikers  or  the  blacklisters  have  a  preponderant  position  in  the 
field,  and  in  consequence  a  power  which  makes  it  impossible  for 
any  rival  to  retaliate  by  the  use  of  the  same  competitive  meth- 
ods.^^     Size  ipso  facto  deprives  the  preponderant  unit  of  the 

45— Allen  v.  Flood,  L.  E.  [1898]  47— Martell  v.  White,  185  Mass. 

A.  C.  1  [337],  ante  %  96.  255     (1904)      [478],     ante     §102; 

46— Bohn  Mfg.  Co.  v.  Hollis,  54  Macauley  v.  Tierney,  19  E.  I.  255 

Minn.  223  (1893)  [473],  on<e§  101.  (1895)  [487],  ante  §103. 

122 


Ch.  8]  DECISIONS  OP  SUPREME  COURT  [§  134 

right  to  use  methods  of  competition  which,  in  the  hands  of  smaller 
units,  are  legal.  The  result  in  the  Lumber  Dealers'  Association 
case  is  to  be  supported  on  the  ground  that  the  retailers  had 
sufficient  size  and  preponderant  position  in  the  retail  business 
so  that  they  were  deprived  of  a  method  of  competition  which 
was  in  and  of  itself  lawful. 

§  134.  There  are,  however,  two  difficulties  with  the  opinion 
of  the  court :  First,  the  case  as  reported  does  not  disclose  any 
facts  clearly  indicating  the  size  and  preponderant  position  of 
the  retailers  in  any  market.  One  may  guess  from  statements 
made  that  they  constituted  a  large  and  powerful  organization; 
but  if  this  fact  be  left  to  guesswork,  one  may  also  hazard  the 
surmise  that  the  wholesalers  would  have  been  quite  as  powerful 
and  perhaps  more  so  if  they  had  been  organized  and  that  the 
wholesalers  were,  therefore,  potentially  at  least,  quite  able  to 
retaliate  by  refusing  to  sell  to  any  retailer  who  belonged  to  an 
association  which  blacklisted  any  member  of  the  "Wholesalers' 
Association.  If  such  was  the  case,  it  was  not  the  business  of 
the  courts  to  say  that  the  succcess  of  one  competitor  over  another 
by  the  use  of  its  power  to  refuse  to  deal  with  the  other  became  a 
tort  by  the  mere  fact  of  success  or  because  it  was  used  for  the 
purpose  of  successful  competition  in  securing  business.  Sec- 
ondly, it  is  not  at  all  clear  that  the  court  concedes  the  right  of 
any  combination  of  retail  lumber  dealers,  however  insignificant 
in  size,  to  act  in  concert  in  refusing  to  deal  with  wholesalers  who 
sell  to  consumers  direct.  The  opinion,  while  conceding  that  any 
one  retail  lumber  dealer  may  refuse  to  deal  with  a  wholesaler 
for  any  reason  he  pleases,  intimates  that  two  or  more  could 
not  do  S0.48     This  sounds  like  the  proposition  that  a  single 

48 — "A  retail  dealer  has  the  un-  in  error  combine  and  agree  that  no 

questioned    right    to    stop    dealing  one   of  them   will   trade   with   any 

with  a  wholesaler  for  reasons  suffi-  producer  or  wholesaler  who  shall  sell 

cient  to  himself,  and  may  do  so  be-  to  a  customer  within  the  trade  range 

cause  he  thinks  such  dealer  is  acting  of  any  of  them,  quite  another  case 

unfairly  in  trying  to  undermine  his  is  presented.    An  act  harmless  when 

trade.     *But,*  as  was  said  by  Mr.  done  by  one  may  become  a  public 

Justice   Lurton,    speaking    for    the  wrong  when  done  by  many  acting 

court    in    Grenada    Lumber   Co.    T.  in  concert,  for  it  then  takes  on  the 

Mississippi,   217   U.   S.   433,   54  L.  form  of  a  conspiracy,  and  may  bo 

ed.  826  (1910),  'when  the  plaintiffs  prohibited  or  punished,  if  the  re- 

123 


§  134]  THE  SHERMAN  ACT  [Ch.  8 

workman  may  strike  for  any  reason  he  pleases,  but  that  if  two 
or  more  do  so  in  concert  it  is  an  unlawful  conspiracy.  It  is 
difficult  to  believe  that  a  court  unhampered  by  any  statute  or 
previous  decision  dealing  directly  with  the  point  and  reaching 
the  problem  today  for  the  first  time  with  full  power  to  solve  it 
by  the  application  of  the  rule  of  reason  could  seriously  put  for- 
ward any  such  proposition. 

Even,  however,  if  the  Supreme  Court's  decision  in  the  Lumber 
Dealers'  Association  case  be  regarded  as  inconsistent  with  the 
results  reached  by  common  law  courts,  that  does  not  mean  that 
the  Sherman  Act  specifies  as  illegal  conduct  which  at  common 
law  was  legal.  It  only  means  that  the  supreme  court,  in  the  exer- 
cise of  its  functions  as  a  common  law  court,  reaching  results  as 
common  law  courts  are  accustomed  to  do,  obtained  a  different 
result  from  some  other  common  law  court;  or  that  it  exercised 
its  prerogative  to  determine  for  itself  what  the  common  law  was. 

§  135.  In  Loewe  v.  Lawlor  ^^  the  secondary  boycott  by  the 
hatters'  union  was  held  to  be  illegal  because  in  violation  of  the 
Sherman  Act  and  the  employer  recovered  triple  damages.  The 
union  members  boycotted  dealers  throughout  the  country  who 
handled  the  plaintiff's  hats.  This  was  done  for  the  purpose 
of  inducing  such  dealers  not  to  handle  the  plaintiff's  hats.  The 
plaintiffs  were  damaged,  and  pressure  was  thus  brought  to  bear 
upon  them  to  compel  them  to  unionize  their  shop  and  thus  aid 
the  National  Hatters'  Union  in  its  competitive  struggle  with 
non-union  labor.  The  preponderant  position  of  the  hatters' 
union  in  the  United  States  was  brought  out  by  the  number  of 
employees  in  the  union  and  by  the  fact  that  seventy  out  of 
eighty-two  manufacturers  in  the  hat  business  had  acceded  to  the 
demands  of  the  union  to  exclude  non-union  labor.  In  accordance 
with  the  common  law,  the  secondary  boycott  by  itself  was  a  tort,^** 
and  might  be  expected  to  be  held  illegal  under  the  Sherman  Act ; 
but  the  additional  facts  showing  a  preponderant  position  in  the 
business  of  the  boycotting  hatters  was  sufficient  to  have  made 

suit  be  hurtful  to  the  public  or  to  also  Lawlor  v.  Loewe,  235  U.   S. 

the    individual    against    whom    the  522    (]Q15)    [1191]. 

concerted  action  is  directed. '  ' '  50 — Ante  §  96. 
49— 208  U.S. 274  (1908)    [1166]; 

124 


Ch.  8]  DECISIONS  OP  SUPREME  COURT  [§136 

some  acts  torts  which  otherwise  might  have  been  lawful  though 
rather  strenuous  methods  of  competition. 

§  136.  In  Thomsen  v.  Cayser  '^  a  judgment  for  triple  dam- 
ages secured  by  a  shipper  against  a  combination  of  steamship  lines 
which  established  a  uniform  freight  rate  and  made  a  rebate  to 
those  shippers  dealing  exclusively  with  the  combination  was 
sustained.  In  the  opinion  of  the  court  it  was  intimated  that  the 
combination  employed 

*  *  *  fighting  ships '  to  kill  off  competing  vessels  which,  tempted  by  the  profits 
of  the  trade,  used  the  free  and  unfixed  courses  of  the  seas,  to  paraphrase 
the  language  of  counsel,  to  break  in  upon  defendants'  monopoly." 

Here  we  have  the  same  methods  of  competition  which  were  found 
not  to  constitute  a  tort  in  Mogul  Steamship  Co.  v.  McGregor,  Gow 
&  Co.52  Again  we  must  ask  whether  these  methods  are  per  se 
illegal  under  the  Sherman  Act,  regardless  of  the  size  and  prepon- 
derant position  of  the  combination,  or  does  the  court  assume  the 
existence  of  such  size  and  preponderant  position  from  its  effec- 
tiveness or  from  any  other  evidence  ? 

51—243  U.  S.  66  (1917). 
52— [1892]  A.  C.  25  [309],  ante 
§94. 


125 


CHAPTER  IX 
THE  DICTA  OF  THE  UNITED  STATES  SUPREME  COURT 

§  137.  So  far  as  the  actual  decisions  of  the  United  States 
Supreme  Court  are  concerned,  they  are  consistent  with  the  view 
that  not  every  contract,  combination,  or  conspiracy  which  is 
(however  slightly)  in  restraint  of  trade  according  to  the  literal 
significance  of  those  words,  is  illegal.  The  decisions  of  the 
courts  are  equally  consistent  with  the  view  that  the  act  con- 
demns only  contracts,  combinations,  and  conspiracies  in  restraint 
of  trade  which  are  deemed  illegal  according  to  some  standard 
which  is  outside  the  language  of  the  act — either  the  standard 
of  the  common  law  or  the  standard  of  the  rule  of  reason. 

But  when  we  look  at  the  dicta  of  the  court  we  find  that  orig- 
inally there  was  much  uncertainty  in  the  choice  to  be  made 
between  the  possible  views. 

§138.  In  United  States  v.  Trans-Missouri  Freight  Associa- 
tion ^  the  court,  speaking  by  Mr.  Justice  Peekham,  sard:  "the 
contract  may  be  a  restraint  of  trade,  but  still  be  valid  at  common 
law."  The  court  thus  intimated  that  the  Sherman  Act  might 
hit  restraints  of  trade  which  were  valid  at  common  law.^  There 
was  no  call  for  this  statement  and  it  has  given  rise  to  a  great 

1—166  TJ.  S.  290  (1897)  [826].  able  restraint  of  trade.  When, 
2 — [877]  "A  contract  may  be  in  therefore,  the  body  of  an  act  pro- 
restraint  of  trade,  and  still  be  nounces  as  illegal  every  contract  or 
valid  at  common  law.  Although  combination  in  restraint  of  trade  or 
valid,  it  is  nevertheless  a  contract  commerce  among  the  several  states, 
in  restraint  of  trade,  and  would  be  etc.,  the  plain  and  ordinary  mean- 
so  described  either  at  common  law  ing  of  such  language  is  not  limited 
or  elsewhere.  By  the  simple  use  of  to  that  kind  of  contract  alone  which 
the  terra  'contract  in  restraint  of  is  in  \inreasonable  restraint  of 
trade,'  all  contracts  of  that  nature,  trade,  but  all  contracts  are  included 
whether  valid  or  otherwise,  would  in  such  language,  and  no  exception 
be  included,  and  not  alone  that  kind  or  limitation  can  be  added  with- 
of  contract  which  was  invalid  and  out  placing  in  the  act  that  which 
unenforceable  as  being  in  unreason-  has  been  omitted  by  Congress." 

126 


Ch.  9]  DICTA  OF   SUPREME  COURT  [§  139 

deal  of  unnecessary  discussion.  For  instance,  the  majority  of  the 
court  having  talked  in  the  unnecessary  way  just  noted,  the  dis- 
senting justices  poured  forth  pages  of  dissenting  opinion  com- 
batting this  dictum.  The  result  was  that  the  majority  were  right 
in  their  decision,  but  wrong  in  this  dictum.  The  dissent  is  right 
in  criticising  the  dictum.  The  result  is  apparent  disagreement 
as  to  the  proper  decision  to  be  reached  when,  as  a  matter  of  fact, 
there  is  only  disagreement  as  to  an  unnecessary  statement  of 
opinion. 

§139.  In  the  Northern  Securities  Case^  four  judges  out  of 
nine  failed  to  state  in  their  opinion  the  true  ground  for  the 
decision,*  and  appeared  to  place  the  result  reached  by  them  on 
the  ground  that  any  merger  of  competing  units  (however  insig- 
nificant) was  illegal.^  Four  judges,  therefore,  seemed  to  support 
the  view  that  the  Sherman  Act  went  far  beyond  the  common  law 
in  holding  acts  illegal  because  in  restraint  of  trade.  Mr.  Justice 
Brewer,  while  supporting  the  result  reached  by  the  court  and  fur- 
nishing in  fact  the  decisive  vote  in  favor  of  that  result,  repudi- 
ated the  unnecessary  language  and  dictum  of  the  Trans-Mis- 
souri Freight  Association  Case,  and  asserted  that  the  restraint  to 
be  illegal  must  be  unreasonable.  Mr.  Justice  Peckham  agreed 
with  Mr.  Justice  Holmes  that  the  Northern  Securities  Company 
did  not  violate  the  Sherman  Act ;  and  it  therefore  became  neces- 
sary for  him  to  distinguish  the  actual  decision  in  the  Trans- 
Missouri  Freight  Association  Case,  in  which  he  wrote  the 
opinion  of  the  court.  This  he  permits  Mr.  Justice  Holmes  to  do 
for  him.  Mr.  Justice  Holmes  attempts  to  draw  a  distinction 
between  combination  by  contract  and  combination  by  merger.^ 
In  the  Traflfic  Association  cases  the  railroads  stayed  in  the  busi- 
ness and  continued  to  operate  their  respective  properties.  There 
was  still  competition  in  service.  By  agreement  they  eliminated 
competition  as  to  rates.  In  the  Northern  Securities  Case  they 
combined  by  merger  and  the  placing  of  competing  properties 
in  the  hands  of  a  single  new  operating  unit.  This  eliminated 
competition  both  as  to  rates  and  service.    The  elimination  of  com- 

3—193  r.  S.  197   (1904)    [910].  Case,   17  Harv.   L.   Bev.   474,  ante 

i—Ante  §§  51,  117  et  seq.  §  118,  note  17. 

5 — John  C.  Gray  evidently  so  re-  6 — [957]. 
garded  the   opinion:      The  Merger 

127 


§139]  THE  SHERMAN  ACT  [Ch.  9 

petition  was  quite  as  effective,  if  not  more  so,  than  that  which 
occurred  by  contract  in  the  Traffic  Association  cases.  It  now 
seems  impossible  to  condemn  a  combination  by  contract,  such 
as  was  dealt  with  in  the  Traffic  Association  cases,  and  at  the 
same  time  sustain  a  combination  by  merger,  such  as  occurred  in 
the  Northern  Securities  Case. 

§140.  It  was  entirely  unnecessary  for  the  decision  in  the 
Standard  Oil  Case ''  that  the  court  should  attempt  to  say  whether 
the  Sherman  Act  prohibited  every  contract,  combination,  or  con- 
spiracy which  was  (however  slightly)  in  restraint  of  trade, 
according  to  the  literal  meaning  of  that  phrase,  or  whether  it 
prohibited  only  illegal  contracts,  combinations,  and  conspiracies 
in  restraint  of  trade — the  illegality  being  determined  by  some 
standard  outside  the  act,  such  as  the  standard  of  the  common 
law  or  the  standard  of  the  rule  of  reason.  On  either  theory  the 
Standard  Oil  Company  of  New  Jersey  was  illegal.  Nevertheless, 
eight  judges  out  of  nine  undertook,  in  a  solemn  dictum,  to  settle 
the  matter  in  favor  of  the  latter  view. 

§  141.  The  court,  in  generalizing  as  to  what  was  prohibited 
by  the  Sherman  Act,  referred  to :  ^ 

'*A11  contracts  or  acts  which  were  unreasonably  restrictive  of  competi- 
tive conditions,  either  from  the  nature  or  character  of  the  contract  or  act, 
or  where  the  surrounding  circumstances  were  such  as  to  justify  the  con- 
clusion that  they  had  not  been  entered  into  or  performed  with  the  legitimate 
purpose  of  reasonably  forwarding  personal  interest  and  developing  trade, 
but,  on  the  contrary,  were  of  such  a  character  as  to  give  rise  to  the  inference 
or  presumption  that  they  had  been  entered  into  or  done  vrith  th^  intent  to  do 
wrong  to  the  general  public  and  to  limit  the  right  of  individuals,  thus 
restraining  the  free  flow  of  commerce  and  tending  to  bring  about  the  evils, 
such  as  enhancement  of  prices,  which  were  considered  to  be  against  public 
policy. ' ' 

Such  a  characterization  is  of  course  absolutely  silent  as  to  what 
specific  acts  are  illegal.  As  to  that  matter,  the  phrases  used 
are  all  quite  circular  and  self-proving.  A  reference  to  acts  which 
are  "unreasonably  restrictive  of  competitive  conditions"  still 
leaves  undone  the  process  of  balancing  interests  in  order  to  deter- 
mine what  features  of  a  given  situation  are  distinctive,  and 
whether  the  balance  is  in  favor  of  or  against  the  validity  of  the 

7—221  U.  8.  1  (1910)   [1072].  8— [1096]. 

128 


Ch.  9]  DICTA  OP  SUPREME  COURT  [§  142 

acts  in  question.  So  where  the  court,  in  attempting  further  to 
specify  what  is  a  test  of  unreasonableness,  says  that  the  act 
would  be  illegal  if  "done  with  the  intent  to  do  ivrong  to  the  gen- 
eral public  and  to  limit  tJie  right  of  individuals,"  it  leaves  us 
quite  as  much  in  the  dark  as  before  as  to  what  is  a  "wrong"  to 
the  general  public  and  what  is  "the  right"  of  individuals.  What 
the  passage  does  clearly  say  is  that  the  Sherman  Act  is  not  to 
be  looked  to  for  the  purpose  of  determining  what  specific  acts 
are  prohibited ;  that  the  function  of  the  act  is  merely  to  conduct 
the  court  into  a  given  federal  jurisdictional  subject  and  there 
leave  it  to  secure  results  according  to  some  standard  outside  of  the 
terms  of  the  act  itself, 

§  142.  Then  the  court  undertakes  to  define  what  this  standard 
is.    It  says :  ^ 

**.  .  .  the  provision  [of  Section  1  of  the  Sherman  Act]  necessarily 
called  for  the  exercise  of  judgment  which  required  that  some  standard 
should  be  resorted  to  for  the  purpose  of  determining  whether  the  prohibi- 
tion contained  in  the  statute  had  or  had  not  in  any  given  case  been  violated. 
Thus  not  specifying,  but  indubitably  contemplating  and  requiring  a 
standard,  it  follows  that  it  was  intended  that  the  standard  of  reason  which 
had  been  applied  at  the  common  law  and  in  this  country  in  dealing  with 
subjects  of  the  character  embraced  by  the  statute  was  intended  to  be  the 
measure  used  for  the  purpose  of  determining  whether,  in  a  given  case,  a 
particular  act  had  or  had  not  brought  about  the  wrong  against  which  the 
statute  provided." 

As  to  Section  2  of  the  act  the  court  says :  ^^ 

**.  .  .  the  criteria  to  be  resorted'  to  in  any  given  case  for  the  purpose 
of  ascertaining  whether  violations  of  the  section  have  been  committed  is 
the  rule  of  reason  guided  by  the  established  law    .    .    ." 

The  court  do€s  not  say  that  it  adopts  the  common  law  as  a  stand- 
ard, but  rather  that  it  adopts  "the  standard  of  reason  which  had 
been  applied  at  common  law."  This  means  that  the  United 
States  Supreme  Court  is  admitted  by  the  Sherman  Act  into  an 
area  of  federal  jurisdiction  over  interstate  and  foreign  commerce 
to  decide  what  contracts,  combinations,  and  conspiracies,  and 
what  attempts  to  monopolize,  are  illegal;  that  in  the  exercise  of 

9— [1097].  10— [1099]. 

Kales  Sum.  R.  of  T.— 9  129 


§142]  THE   SHERMAN   ACT  [Ch.  9 

this  jurisdiction  it  is  not  guided  by  the  language  of  the  act  nor 
bound  by  any  adjudications  of  other  courts ;  that  it  must,  there- 
fore, secure  its  results  as  any  court  does  which  is  dealing  with  the 
common  law  when  it  reaches  a  problem  upon  which  there  is  no 
binding  decision.  It  must  decide  according  to  a  certain  technique 
of  judicial  reasoning  practiced  by  judges  sitting  in  courts  admin- 
istering the  common  law.  With  regard  to  contracts,  combina- 
tions, and  conspiracies  in  restraint  of  trade  and  attempts  at 
monopoly,  it  must  analyze  the  situation  in  question,  balance  the 
interests  of  the  parties  and  the  public,  and  reach  a  generaliza- 
tion as  to  what  is  prohibited  and  what  is  not — all  for  the  pur- 
pose of  determining  whether  the  particular  contract,  combination, 
or  conspiracy,  or  attempt  to  monopolize,  in  question,  is  legal  or 
illegal.  It  must,  in  short,  act  as  Lord  Nottingham  acted  when  he 
analyzed  the  limitations  in  the  Duke  of  Norfolk's  Case  and 
reached  a  generalization  which  has  become  the  basis  for  the  mod- 
ern rule  against  perpetuities.^^  The  Supreme  Court  of  the 
United  States  might  truthfully  have  said  that  it  adopted  the 
standard  of  the  common  law,  but  that  since  it  was  not  bound  by 
the  decisions  in  other  jurisdictions  as  to  what  the  common  law 
might  be,  it  was  the  sole  judge  of  that  law  for  the  purpose  of 
applying  the  Sherman  Act ;  and  that  while  it  looked  to  the  com- 
mon law  decisions  of  other  jurisdictions  for  aid  and  advice,  it 
was  its  duty  to  approach  all  questions  as  to  what  the  common  law 
might  be  with  that  exercise  of  reason  which  was  the  very  essence 
of  the  court 's  function  in  establishing  a  common  law  rule  before 
anything  had  been  settled  by  actual  decision. 

§143.  The  court  explained  ^^  that  the  Traffic  Association 
cases  only  held  that  when  an  act  was  illegal  because  in  restraint 
of  trade  it  was  useless  to  resort  to  various  arguments  and  con- 
siderations in  support  of  its  reasonableness  in  order  to  justify 
it.  This  is  the  same  as  saying  that  after  the  interests  have  all 
been  balanced  and  the  decision  is  against  the  legality  of  the  com- 
bination, it  is  useless  to  urge  over  again  all  those  considerations 
which  exist  in  favor  of  permitting  the  combination  in  order  to 
upset  the  conclusion.  If  this  is  what  the  court  had  meant  in  the 
Traffic  Association  cases,  it  would  have  been  easy  enough  to  have 

ll—Ante  §91.  12— [1101]. 

130 


Ch.  9]  DICTA  OF  SUPREME  COURT  [§144 

SO  stated.  If  the  court  in  the  TraflBe  Association  cases  did  not 
mean  this — if  it  did  mean  what  it  certainly  appeared  to  say,  that 
the  Sherman  Act  prohibited  every  contract,  combination,  or  con- 
spiracy which  was  (however  slightly)  in  restraint  of  trade, 
according  to  the  literal  meaning  of  that  phrase,  so  that  the  pro- 
hibition of  the  act  would  be  broader  than  any  common  law  rule 
of  illegality — ^then  it  is  overruled. 

§  144.  In  United  States  v.  American  Tobacco  Co.*^  the  court, 
in  dealing  with  the  construction  of  the  Sherman  Act,  said : 

"Applying  the  rule  of  reason  to  the  construction  of  the  statute,  it  wm 
held  in  the  Standard  Oil  Case  that  as  the  words  '  restraint  of  trade '  at  com- 
mon law  and  in  the  law  of  this  country  at  the  time  of  the  adoption  of  the 
Anti-trust  Act  only  embraced  acts  and  contracts  or  agreements  or  com- 
binations which  operated  to  the  prejudice  of  the  public  interests  by  unduly 
restricting  competition  or  unduly  obstructing  the  due  course  of  trade  or 
which,  either  because  of  their  inherent  nature  or  effect  or  because  of  the 
evident  purpose  of  the  acts,  etc.,  injuriously  restrained  trade,  that  the 
words  as  used  in  the  statute  were  designed  to  have  and  did  have  but  a  like 
significance. ' ' 

This  passage  again  clearly  states  that  the  Sherman  Act  only  pro- 
hibits conduct  in  restraint  of  trade  which  is  determined  by  the 
court,  by  the  application  of  some  standard  outside  the  act,  to 
be  illegal.  It  is  confusing,  however,  to  say  that  this  construction 
of  the  act  is  reached  by  the  application  of  "the  rule  of  reason." 
The  phrase  "rule  of  reason"  has  been  used  to  describe  the  process 
by  which  the  court  determines  what  acts  are  illegal  under  the 
authority  of  the  statute.  It  would  be  well  to  retain  this  usage 
exclusively  and  consistently.^* 

13—221   U.   S.   106,   179  (1910)  [1162]    the  dicta  of  the  Supreme 

[1136].  Court  in  the  Standard  Oil  and  To- 

14 — ^In     Eastern     States  Betail  bacco   cases  are   quoted   with   ap- 

Lbr.     Dealers'     Ass'n     v.  United  proval. 

States,     234     U.     S.     600  (1914) 


131 


CHAPTER  X 

THE  CONSTITUTIONALITY  AND  VALIDITY  OF  THE 
SHERMAN  ACT 

§145.  Suppose  the  Sherman  Act  prohibits  every  contract, 
combination  and  conspiracy  which  is  (however  slightly)  in  re- 
straint of  trade  according  to  the  literal  significance  of  those 
words,  in  accordance  with  the  dictum  of  the  court  in  the  Trans- 
Missouri  Freight  Association  Case.^  That  would  mean  that 
some  acts  would  be  forbidden  which  were  in  restraint  of  trade 
but  which  at  common  law  were  legal  and  proper.  If,  however, 
the  common  law  determined  what  acts  in  restraint  of  trade  were 
legal  or  illegal  on  the  balance  of  all  the  considerations  affecting 
the  parties  and  the  public,  the  supposed  interpretation  of  the 
Sherman  Act  would  cause  it  to  prohibit  acts  which  on  a  bal- 
ance of  all  the  proper  considerations  were  not  contrary  to  the 
interests  of  the  parties  or  the  public.  Such  a  construction  would 
mean  that  the  act  would  be  a  blow  (incalculable  in  extent)  to 
the  freedom  to  do  business.  Would  it  then  be  "due  process  of 
law"  under  the  Fifth  Amendment  ?  Might  it  not  be  quite  as  vio- 
lent an  onslaught  upon  the  fundamentals  of  the  social  struc- 
ture as  the  acts  held  void  in  the  Lochner  Case,^  the  Adair  ^  and 
Coppage  *  cases  and  the  Upper  Berth  Case  ^  ?  This  is  now  a  moot 
question  because  such  a  construction  of  the  Sherman  Act  has 
been  finally  repudiated.  It  is  worth  noting,  however,  that  the 
Supreme  Court  of  the  United  States  undertook  to  sustain  the 
constitutionality  of  the  Sherman  Act  even  when  it  was  inclined 
to  adopt  the  construction  assumed.^ 

l—Ante  §138.  5— Chicago,  Milwaukee  &  St.  P. 

2— Lochner  v.  New  York,  198  U.  E.  E.  v.  Wisconsin,  238  U.  S.  491 

S.  45  (1905).  (1915).     See  Due  Process,  the  In- 

3 — ^Adair   v.    United   States,    208  articulate   Major  Premise   and  the 

IT.  S.  161  (1908).  Adamson  Act,  by  A.  M.  Kales,  26 

4 — Coppage  v.   State   of  Kansas,  Yale  Law  Journal  519. 

236  U.  S.  1  (1915).  6— United  States  v.  Joint  Traffic 

132 


Ch.  10]  VALIDITY  OF  ACT  [§  147 

§  146.  Now  suppose  (as  seems  settled)  the  act  prohibits  only 
contracts,  combinations,  and  conspiracies  which  are  illegal  be- 
cause in  restraint  of  trade — the  illegality  being  determined  by 
some  standard  outside  the  act — i.  e.,  "the  standard  of  reason 
which  was  applied  at  common  law. ' '  Is  the  act  valid  ?  Certainly 
the  act  would  not  violate  the  Fifth  Amendment.  It  would  not 
fail  to  be  "due  process  of  law";  for,  ex  hypotJiesi,  what  is  de- 
clared illegal  by  the  act,  should,  on  a  balance  of  all  the  interests, 
be  prohibited.'''  But  why  is  not  the  act  void  for  uncertainty,  or 
because  it  is  a  delegation  of  legislative  powers  to  the  court  to 
define  crime  and  acts  which  are  prohibited  by  law  ? 

§  147.  If  the  statute  is  not  void  for  uncertainty  it  must  be 
because  there  is  a  sufficient  standard  to  make  the  acts  prohibited 
certain.  In  International  Harvester  Co.  v.  Kentucky  ^  the  legis- 
lation in  question  failed  for  uncertainty  because  there  was  no 
standard  at  all.  The  standard  of  real  value  of  the  article  sold 
by  the  combination  as  compared  with  the  price  asked  was  purely 
illusory.  In  the  case  of  the  Sherman  Act,  however,  there  is  a 
standard  in  the  fiat  of  the  court  itself  applying  the  rule  of  rea- 
son as  at  common  law.  This  is  a  real  standard  because  it  makes 
every  act  prohibited  just  as  definite  and  certain  as  was  every 
common  law  crime,  or  act  held  invalid  because  it  was  in  restraint 
of  trade,  before  the  court  had  finally  adjudicated  the  act  to  be 
a  crime  or  to  be  illegal.  Courts  which  are  admittedly  tied  to  the 
common  law  system  could  not  say  that  a  statute  which,  in  defining 
crime  or  illegal  acts,  provided  for  the  same  degree  of  uncer- 
tainty— ^no  more  and  no  less — and  the  same  basis  of  uncertainty 
which  existed  at  common  law  before  any  authoritative  determina- 
tion had  been  made,  was  too  uncertain  to  be  valid.^ 

Association,  171  U.  8.  505   (1898)  contract,  and  unreasonably  operates 
[765].  upon  the  right  to  acquire  and  hold 
7 — Standard     Oil     Company     v.  property.    As  the  premise  is  demon- 
United  States,  221  U.  S.  1   (1910)  strated  to  be  unsound  by  the  con- 
[780]:     "But  the  ultimate  founda-  struction  we  have  given  the  statute, 
tion  of  all  these  arguments  [against  of    course    the    propositions    which 
the   constitutionality    of    the    Sher-  rest  upon  that  premise  need  not  be 
man   Act]    is   the   assumption   that  further  noticed." 
reason  may  not  be  resorted  to  in  in-  8 — 234  U.  S.  216   (1914). 
terpreting  and  applying  the  statute,          9 — Nash    v.    United    States,    229 
and  therefore,  that  the  statute  un-  U.  S.  373   (1913)    [1152]. 
reasonably    restricts    the    right    to 

133 


§  148]  THE  SHERMAN  ACT  [Ch.  10 

§148.  But  if  the  source  of  uncertainty  is  the  "standard  of 
reason"  applied  by  the  court,  why  is  not  the  act  void  because  it 
is  a  delegation  of  power  to  define  crime  and  illegal  acts  ?  Suppose, 
for  instance,  the  act  had  in  terms  empowered  the  supreme  court 
to  determine  what  contracts,  combinations,  and  conspiracies  in 
restraint  of  trade  were  illegal;  and  that  in  so  doing  it  was  to 
exercise  its  reason  and  balance  the  interests  of  the  parties  and 
the  public  as  the  judges  in  common  law  courts  did  upon  making 
a  decision  before  any  authoritative  adjudication  had  occurred 
upon  the  subject  dealt  with.  Would  such  an  act  be  a  delegation 
of  legislative  power  to  define  crime  or  illegal  acts  ?  Clearly  not. 
The  legislation  enacted  would  merely  cast  upon  the  court  its 
centuries-old  common  law  judicial  function.  The  act  would  do 
no  more  than  define  a  federal  jurisdiction  over  interstate  and 
foreign  commerce  into  which  it  would  conduct  the  court  there 
to  operate  as  common  law  courts  regularly  operate  in  reaching 
decisions.  It  would  do  no  more  than  is  effected  where,  by  the 
settlement  of  a  colony  or  a  territory  from  a  common  law  juris- 
diction, the  courts  of  the  new  jurisdiction  begin  to  decide  what 
is  common  law  and  to  apply  it  on  the  ground  that  the  settlers 
brought  the  common  law  with  them.^^  The  Supreme  Court  of 
the  United  States,  when  exercising  its  original  jurisdiction  in 
disputes  between  states,  at  once  adopted  the  standard  of  reason 
which  was  applied  at  common  law,  and  called  the  result  inter- 
state common  law.^i  Surely  Congress  can  give  to  the  federal 
courts  the  power  which  courts  have  exercised  without  any  act 
of  any  legislature.  The  federal  courts  in  certain  classes  of  cases 
where  they  obtained  jurisdiction  on  the  ground  of  diverse  citi- 
zenship have,  under  the  doctrine  of  Swift  v.  Tyson,i2  under- 
taken to  apply  what  they  conceive  is  the  common  law  rule.  Their 
common  law  rule  not  infrequently  differs  from  the  common  law 
rule  of  the  state  where  the  action  arose  and  where  the  case  was 

10 — Railroad  v.  Keary,  3  Oh.  St.  ancestors  "brought  with  them  the 

201,205(1854);  Bloom  v.  Richards,  common    law    in    general,    although 

2    Oh.    St.    387,    390    (1853).      See  many  of  its  principles  lay  dormant, 

also  State  v.  Ca wood,  2  Stew.  (Ala.)  until  awakened  by  occasion." 
360,  362    (1830).     In  Lyle  v.  Rich-  11— Kansas  v.   Colorado,  206  U. 

ards,    9    Serg.    &    Rawle    322,    330  S.  46   (1907). 
(1832)    the   court   states   that   our  12—16  Pet  1  (1842). 

134 


Ch.  10]  VALIDITY  OF  ACT  [§  148 

tried.  No  acts  of  Congress  conferred  this  power.^^  gy  -vvhat 
rational  process  tlie  federal  courts  secured  it  is  still  a  mystery.^* 
If  the  federal  courts  can,  in  the  exercise  of  their  jurisdiction 
founded  upon  diverse  citizenship,  declare  what  is  the  common 
law,  surely  they  can  do  the  same  thing  in  the  jurisdiction  con- 
ferred upon  them  by  the  Sherman  Act  with  respect  to  restraints 
of  trade  in  interstate  and  foreign  commerce.  Then  we  have 
the  state  statutes  which  declare  generally  that  the  common 
law  shall  be  the  rule  of  decision.  We  find  cases  attempt- 
ing to  describe  what  this  means.^^  But  no  one  ever  attempted  to 
call  such  acts  unconstitutional  because  they  were  a  delegation  of 
legislative  power  to  the  courts  to  define  crime,  or  the  rights  or 
liabilities  of  the  parties.  The  parallel  between  such  acts  and  the 
Sherman  Act  is  complete.  Both  alike  conduct  the  courts  into  a 
given  jurisdiction  and  then  authorize  them  to  act  within  that 
jurisdiction  the  way  courts  administering  the  common  law  have 
been  accustomed  always  to  act.  The  only  difference  is  that  the 
general  statute  adopting  the  common  law  is  comprehensive  as 
to  subjects  and  territorial  jurisdiction.  The  Sherman  Act  picks 
out  a  special  jurisdiction — "interstate  and  foreign  commerce" — 
and  then  as  to  that  gives  the  federal  courts  authority  to  act  (as 
common  law  courts  administering  common  law  have  been  accus- 
tomed to  act)  only  with  reference  to  contracts,  combinations,  and 
conspiracies  in  restraint  of  trade,  and  monopolies,  and  attempts 
to  monopolize. 

13 — ^Indeed,  it  seems  to  have  been  been  held  that  the  rules  of  law  de- 
established  contrary  to  the  terms  termined  by  the  decisions  of  the 
of  the  Judiciary  Act,  U.  S.  Stat.  state  as  to  the  law  of  real  prop- 
1789,  Chap.  20,  paragraph  34,  which  erty,  for  instance,  shall  be  applied 
provided  that  "the  laws  of  the  in  the  federal  courts, 
several  states,  except  where  the  14 — The  Nature  and  Sources  of 
Constitution,  pleadings,  or  statutes  the  Law,  John  C.  Gray,  §§535  et 
of   the   United    States   shall   other-  seq. 

wise  require  or  provide,  shall  be  re-  15 — Williams   v.    Miles,    68    Neb. 

garded  as  rules  of  decision  in  trials  463  (1903) ;  Lux  v.  Haggin,  69  Cal. 

at  common  law  in  the  courts  of  the  255  (1886);   Say  ward  v.  Carlson,  1 

United  States  in  cases  where  they  Wash.  29  (1890). 
apply";    and   under   which   it  has 


135 


CHAPTER  XI 

WHO  MAY  INVOKE   THE  APPLICATION  OF  THE 
SHERMAN  ACT 

§149.  Of  course  the  Attorney-General  of  the  United  States 
may  invoke  the  application  of  the  act  by  a  bill  in  equity  or  indict- 
ment in  the  federal  courts.  The  individual  may  also  do  so  in  a 
suit  for  triple  damages  under  Section  7.  But  the  stockholder 
of  a  corporation  that  could  sue  under  Section  7  cannot,  in  his 
own  name,  sue  for  triple  damages.^  Nor  can  he  sue  in  equity 
for  triple  damages  even  when  the  oflScers  of  the  corporation  refuse 
to  do  so  and  the  corporation  itself  is  made  a  party  defendant.^ 
Such  an  action  would  deprive  the  defendant  who  had  wronged 
the  corporation  of  trial  by  jury  in  a  suit  for  a  penalty.  His 
right  should  not  be  affected  by  the  refusal  of  the  officers  of  the 
corporation  to  accommodate  the  stockholder.  The  stockholder 
might  attempt  to  secure  a  decree  directing  the  corporation  to  sue, 
and  if  it  failed  to  do  so,  or  could  not  properly  be  trusted  to  do 
so,  ordering  the  corporation  to  permit  the  plaintiff  to  sue  at 
law  in  its  name  and  on  its  behalf.  Perhaps,  in  the  suit  by  the 
stockholder  against  the  corporation  and  the  defendant  alleged 
to  have  committed  the  damage,  the  court,  after  a  preliminary 
investigation  of  the  merits  of  the  plaintiff's  case  and  the  existence 
of  the  refusal  of  the  corporate  officers  to  sue  and  want  of  justifi- 
cation for  such  refusal,  might  properly  send  the  issue  of  the 
violation  of  the  Sherman  Act  and  the  damages  to  a  court  of  law 
for  trial  by  jury. 

§  150.  How  far  may  the  individual  apart  from  the  suit  for 
triple  damages  invoke  the  operation  of  the  court  under  the  Sher- 
man Act  ?  Of  course,  he  cannot  take  the  place  of  the  Attorney- 
General  and  institute  such  a  suit  as  the  government  is  authorized 

1 — Ames  V.  American  Tel.  &  Tel.  2 — Fleitmann    v.    Welsbach    Co., 

Co.,  166  Fed.  820  (1909)   [1221].  240  U.  S.  27  (1916). 

136 


Ch.  11]  WHO  MAY  INVOKE  ACT  [§152 

to  bring.*  The  individual  must  in  any  case  have  a  private^  right 
which  is  infringed  by  the  conduct  which  under  the  Sherman  Act 
is  illegal.  This  usually  means  that  he  must  have  suffered  some 
special  damage — damage  different  from  that  suffered  by  the 
public  at  large. 

§  151.  Suppose,  for  instance,  the  complainant  is  a  minority 
stockholder  in  a  corporation,  the  majority  of  the  stock  of  which 
is,  illegally  and  in  violation  of  the  Sherman  Act,  being  held  by 
another  corporation.  Can  there  be  any  doubt  that  the  minority 
stockholder  can  challenge  the  legality  of  that  stockholding? 
Hardly.  It  is  no  answer  that  the  government  can  do  so  or  that 
the  stockholder  might  sue  for  triple  damages.  The  Sherman  Act 
makes  the  stockholding  generally  illegal;  and  the  lawful  stock- 
holder may  challenge  in  equity  the  control  and  acts  of  the  illegal 
holder  of  stock,^  just  as  he  may  where  the  stockholding  is  illegal 
at  common  law.^  His  private  right  to  be  associated  only  with 
legal  stockholders  has  been  infringed;  he  has  suffered  the  spe- 
cial damage  required. 

§152.  Suppose  the  defendant's  conduct  in  violation  of  the 
Sherman  Act  is  a  tort  to  the  plaintiff  for  which  he  could  recover 
triple  damages.  For  instance,  suppose,  as  in  Loewe  v.  Lawlor,» 
the  defendant  has  practiced  the  secondary  boycott  against  the 
plaintiff  and  thereby  damaged  him.  Suppose  also  the  damage 
is  irreparable  and  the  remedy  at  law — even  for  triple  dam- 
ages— is  inadequate.  Can  the  plaintiffs  have  relief  by  injunc- 
tion ?  This  question  should  be  answered  in  the  aflSrmative.  No 
reason  can  be  urged  why  the  injunctive  remedy  is  not  available 

3 — Minnesota    v.    Northern    Se-  Boyd  v.  New  York  &  H.  E.  Co.,  220 

curities  Co.,  1&4  U.  S.  48,  70,  72  Fed.  174  (1915) ;  Union  Pacific  B. 

(1904).  E.    Co.    V.    Frank,    226    Fed.    906 

4 — Bigelow  V.   Calumet  &  Hecla  (1915). 

Mining   Co.,   155  Fed.   869    (1907)  5 — Dunbar     v.     American     Tele- 

[1195];    Shawnee   Compress   Co.   v.  phone  &  Telegraph  Co.,  238  HI.  456 

Anderson,    209    U.    S.    423    (1908)  (1909);   Harding  v.  American  Glu- 

[785] ;  Continental  Securities  Co.  v.  cose    Co.,     182    III.    551,    625-633 

Interborough  Rapid  Transit  Co.,  165  (1899). 

Fed.  945  (1908);  de  Koven  v.  Lake  6—208  U.  S.  274  (1908)   [1166]; 

Shore  &  M.   S.  Ey.   Co.,  216  Fed.  Lawlor   v.    Loewe,   235    U.    S.    522 

955;    Geddes   v.    Anaconda    Copper  (1915)    [1191]. 
Mining  Co.,  222  Fed.  129   (1915); 

137 


§  152]  THE  SHERMAN  ACT  [Ch.  11 

to  prevent  a  tort  merely  because  the  tort  is  the  creation  of  a 
statute,  unless  it  can  be  said  that  the  statutory  remedies  are  ex- 
clusive. The  cases  which  give  the  minority  stockholder  a  right 
to  proceed  in  his  own  name  against  the  illegal  stockholders  indi- 
cate that  the  remedies  provided  by  the  statute  are  not  exclusive. 
Furthermore,  when  it  is  remembered  that  the  true  function  of  the 
Sherman  Act  is  not  to  make  illegal  any  specifically  described  act, 
but  merely  to  let  the  federal  courts  into  a  federal  jurisdiction 
over  interstate  and  foreign  commerce  there  to  exercise  the  com- 
mon law  court's  function  of  deciding  what  contracts,  combina- 
tions, and  conspiracies  in  restraint  of  trade  are  illegal,  and  what 
monopolies  and  attempts  to  monopolize  are  illegal,  there  is  rea- 
son enough  for  permitting  all  the  remedial  consequences  of  the 
court's  action  in  finding  certain  acts  to  be  illegal.  The  remedies 
provided  by  the  statute  are  just  those  which  the  courts  exercis- 
ing the  function  of  the  common  law  courts  could  not  grant.  They 
are,  therefore,  in  addition  to  the  remedies  which  the  court  could 
grant  if  those  special  remedies  had  not  been  mentioned  in  the  act. 
Hence,  when  under  the  authority  of  the  statute  the  court  finds 
that  a  tort  has  been  committed,  any  remedy  by  injunction  ordi- 
narily available  should  be  open  to  the  plaintiff — ^with  possibly  the 
qualification  that  if  triple  damages  may  be  recovered  the  com- 
plainant's bill  for  an  injunction  should  make  it  clear  that  a 
judgment  for  triple  damages  is  still  an  inadequate  remedy  at 
law.  Recently,  however,  the  supreme  court  in  Paine  Lumber  Co. 
v.  Neal,''  has  taken  a  contrary  view.^  The  majority  of  the  court, 
by  Mr.  Justice  Holmes,  merely  expresses  its  conclusion.  Four 
justices  dissent.  The  dissenting  opinion  of  Mr.  Justice  Pitney 
seems  not  to  have  been  met  or  to  be  answerable.  In  view  of 
Section  16  of  the  Clayton  Act,  the  precise  question  involved  is  now 
of  less  practical  interest.® 

7—244  U.  S.  459  (1917).  States    Express    Co.,    88    Fed.    659 

8 — ^Following    the    inclination    of  (1898) ;    National  Fireproofing  Co. 

the  lower  federal  courts  in  Pidcock  v.  Mason  Builders*  Association,  169 

V.  Harrington,  64  Fed.  821    (1894)  Fed.    259     (1909).     (This    case    is 

[1219] ;  Blindell  v.  Hagan,  54  Fed.  analyzed  ante  §  105  to  show  that  no 

40    (1893) ;    Greer   Mills   &    Co.    v.  tort  had  been  committed.) 

Stoller,  77  Fed.  1  (1896) ;  Southern  9— Pos*  §  162. 
Indiana     Express     Co.     v.     United 

138 


Ch.  11] 


WHO   MAY  INVOKE   ACT 


[§153 


§153.  Suppose  the  defendant,  when  sued  upon  a  contract 
for  the  sale  of  goods,  defends  upon  the  ground  that  the  seller 
exists  in  violation  of  the  Sherman  Act.  Clearly  the  defense  fails. 
The  mere  existence  of  the  seller  is  not  a  special  damage  to  the 
defendant  or  an  infringement  of  any  private  right  which  he  may 
have.  The  buyer  is  affected  only  in  the  same  way  that  the  pub- 
lic generally  is  affected.  He  cannot,  therefore,  raise  the  illegality 
of  the  seller's  existence  as  a  business  unit.^''  Suppose,  however, 
the  very  contract  of  sale  upon  which  the  defendant  is  sued  for 
the  purchase  price  is  itself  illegal  because  one  of  a  scheme  of  con- 
tracts by  means  of  which  the  illegal  combination  is  secured.  In 
the  "Wall  Paper  Case  these  facts  were  held  to  constitute  a  de- 
fense.^i  In  the  Com  Products  Case^^  the  decision  in  the  Wall 
Paper  Case  was  approved  and  distinguished  on  the  ground  that 
the  holding  there  "was  rested  exclusively  upon  elements  of  ille- 
gality inhering  in  the  particular  contract  of  sale  in  that  case." 
In  the  Com  Products  Case  the  contract  sued  upon  was,  taken  by 
itself,  legal.  It  did  not  appear  that  the  scheme  of  contracts  of 
which  it  was  a  part  effected  the  illegal  combination;  but  only 
that  the  seller  which  made  the  contract  was  an  illegal  combina- 
tion, and  sought  to  perpetuate  its  power  by  the  form  of  contract 
in  question.  This  was  insufficient,  and  distinguished  the  case 
from  the  Wall  Paper  Case. 


10 — Connolly  v.  Union  Sewer 
Pipe  Co.,  184  XT.  S.  540  (1902) 
[1199]. 

11 — Continental  Wall  Paper  Co. 
V.  Voight  &  Sons  Co.,  212  XT.  S. 
227  (1909)  [799].  In  the  same 
way,  where  a  long  distance  tele- 
phone company  attempted  to  en- 
force specifically  an  exclusive  con- 
tract for  connection  with  local  ex- 
changes, and  the  exclusive  contract 


was  part  of  a  scheme  of  contracts, 
and  all  were  illegal  at  common  law 
and  under  the  Sherman  Act,  these 
facts  constituted  a  complete  de- 
fense: United  States  Telephone  Co. 
V.  Central  Union  Telephone  Co., 
202  Fed.  66  (1913). 

12 — Wilder  Manufacturing  Co.  v. 
Corn  Products  Co.,  236  U.  S.  165 
(1915)   [1211]. 


139 


PART  3 

THE  FEDERAL  TRADE  COMMISSION 
LAW  AND  THE  CLAYTON  ACT 


CHAPTER  XII 
THE  FEDERAL  TRADE  COMMISSION  LAW  i 

§  154.  Section  5  of  the  Federal  Trade  Commission  Law  provides 
"that  unfair  methods  of  competition  in  commerce  are  hereby 
declared  unlawful." 

It  is  clear  that  this,  like  the  Sherman  Act,  merely  operates 
as  a  general  license  to  the  federal  courts,  when  cases  are  presented 
within  the  federal  jurisdictional  subject  of  interstate  and  foreign 
commerce,  to  declare  or  make  the  law  as  to  what  are  illegal 
methods  of  competition  and  what  are  not,  according  to  the  usage 
customarily  adopted  by  common  law  courts,  i.  e.,  by  applying  the 
rule  of  reason. 

The  first  doubt  which  arises  is  whether  the  phrase  "unfair 
methods  of  competition ' '  embraces  all  illegal  methods  of  compe- 
tition, that  is,  all  unjustifiable  torts  committed  in  the  course  of 
competition,  or  whether  it  confines  the  jurisdiction  of  the  fed- 
eral courts  to  passing  upon  the  legality  or  illegality  of  those  meth- 
ods of  competition  which  are  employed  by  units  occupying  a 
preponderant  position  in  the  business.  The  fact  is  that  "unfair 
competition"  is  a  phrase  which  has  had  a  certain  currency  to 
indicate  acts  of  competition  which  were  torts  without  regard  to 
the  size  of  the  defendant.  "Unfair  methods  of  competition," 
on  the  other  hand,  is  a  more  recent  phrase  which  has  been  asso- 
ciated largely  with  the  acts  of  competition  which  are  torts  only 
when  employed  by  units  occupying  a  preponderant  position  in  the 
business. 

1— Pub.  No.  203— 63rd  Cong. 

140 


Ch.  12]  FEDERAL  TRADE  COMMISSION   LAW  [§  154 

If  this  latter  meaning  of  "unfair  methods  of  competition"  be 
adopted,  then  it  is  doubtful  whether  Section  5  of  the  Federal 
Trade  Commission  Act  adds  much  to  the  federal  law.  "Unfair 
methods  of  competition,"  in  the  sense  of  methods  which  were 
illegal  because  employed  by  a  unit  occupying  a  preponderant 
position  in  a  business,  were  under  the  Sherman  Act  torts  to  the 
one  damaged,  and  might  be  made  the  basis  of  a  recovery  for 
three-fold  damages  or  for  a  dissolution  suit  against  the  unit 
using  them.  It  is  difficult  to  conceive  of  an  "unfair  method  of 
competition"  by  a  unit  occupying  a  preponderant  position  in 
the  business  which  is  not  involved  in  a  contract,  combination  or 
conspiracy  in  restraint  of  trade,  or  an  attempt  to  monopolize. 


u^ 


CHAPTER  XIII 
THE  CLAYTON  ACT  i 

§155.  The  Clayton  Act  in  terms  forbids  combinations  by 
stock  ownership  in  other  corporations  ^*  and  by  interlocking 
directors.2  The  provisions  forbidding  interlocking  directors 
are  quite  specific.  The  owning  of  stock  in  other  corporations 
seems  to  be  forbidden  only  when  its  effect  may  be  "to  substan- 
tially lessen  competition"  between  the  corporations  or  "to  re- 
strain such  commerce  in  any  section  or  community,  or  tend  to 
create  a  monopoly  of  any  line  of  commerce."  This  would  seem 
to  throw  the  whole  matter  into  the  hands  of  the  court  to  decide 
as  common  law  courts  are  accustomed  to  decide  cases.  The  words 
of  the  act  hardly  add  anything  to  what  the  court  could  do  under 
the  Sherman  Act. 

§156.  Two  unfair  methods  of  competition  are  indicated 
and  declared  to  be  unlawful — ^local  price-cutting  ^  and  exclusive 
(or  tying)  contracts  of  sale  or  purchase.*  Both  acts  are  declared 
unlawful  only  when  their  effect  is  "to  substantially  lessen  com- 
petition or  tend  to  create  a  monopoly  in  any  line  of  commerce. ' ' 
Does  this  do  any  more  than  leave  it  to  the  courts,  acting  as  com- 
mon law  courts  were  accustomed  to  proceed,  to  make  or  declare 
what  act  of  local  price-cutting  or  what  exclusive  contract  would 
be  a  tort  ?  If  not,  the  fact  that  the  local  price-cutting  or  exclusive 
contract  was  used  by  a  unit  occupying  a  preponderant  position 
in  the  business  would  be  an  important,  if  not  a  decisive,  element 
in  making  the  tort.  What  other  elements  might  be  sufficient  to 
make  the  act  of  local  price-cutting  or  exclusive  contract  a  tort 
to  the  party  damaged,  it  is  not  attempted  here  to  specify;  but 
whatever  they  may  be,  it  is  submitted  that  they  are  the  same 
under  the  Sherman  Act  as  they  are  under  the  Clayton  Act. 

1— Pub.  No.  212— 63rd  Cong.  3— Sec.  2  [1229]. 

la— See.  7  [1231].  4— Sec.  3  [1229]. 

2— Sec.  8  [1232]. 

142 


Ch.  13]  CLAYTON  ACT  [§  159 

§  157.  The  most  discussed  sections  of  the  Clayton  Act  have 
been  the  so-called  labor  provisions — Sections  6  and  20.'^  Section 
6  commences  with  the  declaration  "that  the  labor  of  a  human 
being  is  not  a  commodity  or  article  of  commerce."  No  labor 
organization  or  its  acts  can,  therefore,  be  brought  within  the 
jurisdiction  conferrred  by  the  Sherman  Act  by  reason  of  the  fact 
that  labor  units  pass  from  one  state  to  another.  But  the  Clayton 
Act  does  not  in  the  least  prevent  the  same  organization  or  the 
acts  of  such  organization  from  coming  within  that  jurisdiction 
because  they  affect  interstate  commerce  in  commodities  as  in 
Loewe  v.  Lawlor.^  As  labor  organizations  and  the  acts  of  such 
organizations  which  are  attacked  for  illegality  under  the  Sherman 
Act  practically  always  affect  interstate  commerce  in  a  commod- 
ity, the  first  sentence  of  Section  6  of  the  Clayton  Act  is  not  of 
practical  value  in  exempting  labor  organizations  and  their  acts 
from  the  possibility  of  being  illegal  under  the  Sherman  Act. 

§158.  Section  6  goes  on  to  provide:  "nothing  contained  in 
the  antitrust  laws  shall  be  construed  to  forbid  the  existence  and 
operation  of  labor,  agricultural,  or  horticultural  organizations, 
instituted  for  the  purposes  of  mutual  help  and  not  having  cap- 
ital stock  or  conducted  for  profit,  or  to  forbid  or  restrain  indi- 
vidual members  of  such  organizations  from  lawfully  carrying 
out  the  legitimate  objects  thereof. ' '  This  is  merely  a  restatement 
of  the  common  law  and  presumably  the  law  under  the  Sherman 
Act — ^that  labor  organizations  "for  the  purposes  of  mutual  help" 
are  not  per  se  illegal  but  are  on  the  contrary  lawful.  Nor  is 
there  anything  illegal  at  common  law  or  under  the  Sherman 
Act  in  individual  members  of  "such  organization"  {i.  e.,  a  legal 
organization  "for  the  purposes  of  mutual  help")  *' lawfully 
carrying  out  the  legitimate  objects  thereof."*^ 

§  159.  The  last  clause  of  Section  6  adds  nothing.  It  simply 
reiterates  what  is  the  common  law  and  the  law  presumably  under 
the  Sherman  Act  that  "such  organizations  [i.  e.,  such  as  are 

5 — [1230,   1241].     See   an   excel-  7 — See    opinion    of    Mr,    Justice 

lent  note  by  Conrad  E.   Snow,   30  Pitney    in    Paine    Lumber    Co.    v. 

Harv.  L.  Eev.  632.  Neal,  244  U.  S.  459  (1917). 

fr-208  U.  S.  274  (1908)  [1166]; 
Lawlor  v.  Loewe,  235  U.  S.  522 
(1915)  [1191]. 

lis 


§  159]  TRADE  COMMISSION  AND  CLAYTON  ACTS  [Ch.  13 

lawful  and  organized  for  purposes  of  mutual  help]  and  the 
members  thereof"  shall  not  "be  held  or  construed  to  be  illegal 
combinations  or  conspiracies  in  restraint  of  trade  under  the 
antitrust  laws." 

The  care  with  which  Section  6  affirms  the  legality  of  organ- 
izations and  acts  of  labor  which  were  valid  at  common  law  and 
therefore  valid  under  the  Sherman  Act,  raises  the  inference  very 
clearly  that  labor  organizations  and  the  acts  of  such  organiza- 
tions which,  by  reason  of  their  being  not  merely  for  mutual 
help,  but  for  the  purposes  of  monopoly  and  to  exclude  others 
from  the  labor  market,  were  illegal  at  common  law  and  under 
the  Sherman  Act  are  still  illegal  under  the  Clayton  Act. 

§  160.  Section  20  enumerates  a  list  of  specific  acts  which  it 
provides  shall  not  "be  considered  or  held  to  be  in  violation  of 
any  law  of  the  United  States."  This  list  does  not  include  the 
"secondary  boycott,"  which  was  a  tort  at  common  law^  and 
under  the  Sherman  Act.^  The  list  does  include  a  number  of 
acts  which,  taken  by  themselves  alone,  were  clearly  lawful  at 
common  law  and  may  be  assumed  to  have  been  lawful  also  under 
the  Sherman  Act — such  as:  "terminating  any  relation  of  em- 
ployment," and  "ceasing  to  perform  any  work  or  labor."  This 
points  to  the  strike.  Mere  striking,  however,  has  never  been 
illegal  at  common  law ;  and  it  may  be  assumed  that  it  is  not  so 
under  the  Sherman  Act.  In  the  same  list  of  acts  is  mentioned 
"ceasing  to  patronize  or  to  employ  any  party  to  such  dispute, 
or  from  recommending,  advising  or  persuading  others  by  peace- 
ful and  lawful  means  so  to  do."  This  refers  to  the  direct  boy- 
cott, which  is  legal  at  common  law  ^^  and  presumably  so  under 
the  Sherman  Act  "Paying  or  giving  to  or  withholding  from 
any  person  engaged  in  such  dispute,  any  strike  benefits  or  other 
moneys  or  things  of  value;"  or  "peaceably  assembling  in  a  law- 
ful manner,  and  for  lawful  purposes;"  or  "doing  any  act  or 
thing  which  might  lawfully  be  done  in  the  absence  of  such  dis- 
pute by  any  party  thereto,"  are  acts  which  are  certainly,  by 
themselves  alone,  lawful  and  unobjectionable  at  common  law 
or  under  the  Sherman  Act.     The  moment,  however,  the  acts 

S—Ante  §  97.  10— Ante  §  96. 

9— Ante  §135. 

144 


Ch.  13]  CLAYTON  ACT  [§  161 

enumerated  are  used  by  a  combination  of  labor  units  occupying 
a  preponderant  position  in  the  market  with  the  purpose  of 
excluding  others  from  that  market — thereby  achieving  or  at- 
tempting to  achieve  a  monopoly — they  cease  to  be  the  acts  to 
which  the  statute  refers.  They  become  acts  of  an  entirely  dif- 
ferent character  and  effect.  The  combination  and  its  acts  are 
illegal  at  common  law  and  presumably  so  under  the  Sherman 
Act.  Section  20  of  the  Clayton  Act  contains  no  word  which 
saves  them  from  that  illegality,  ^i 

§161.  The  following  acts  mentioned  in  the  enumeration  of 
Section  20  are  the  only  ones  which  have  not  yet  been  commented 
upon:  "recommending,  advising,  or  persuading  others  by 
peaceful  means  so  to  do"  {i.  e.,  strike) ;  or  ** attending  at  any 
place  where  any  such  person  or  persons  may  lawfully  be,  for  the 
purpose  of  peacefully  obtaining  or  communicating  informa- 
tion," or  "peacefully  persuading  any  person  to  work  or  to 
abstain  from  working."  If  these  acts  were  in  and  of  them- 
selves alone,  without  any  localized  monopoly  purpose,  illegal  at 
common  law  and  under  the  Sherman  Act,  then  this  section  of 
the  Clayton  Act  has  made  them  legal.    But  that  does  not  neces- 

11 — Observe    the    limitation    put  this  case.    Defendants  who  are  em- 

upon  the  application  of  sec.  20  by  ployees   are  in   one  branch   of   in- 

Mr.  Justice  Pitney  in  his  dissenting  dustry   in    New    York    City;    com- 

opinion  in  Paine  Lumber  Co,  v.  Neal,  plainants  are  employers  of  labor  in 

244  U.   S.  459    (1917).     He  says:  another  branch  of  industry  in  dis- 

*'It  [§20]  refers  only  to  cases  'be-  tant  states.     Nor  is  there  any  dis- 

tween  an  employer  and  employees,  pute  between  them  concerning  terms 

or     between     employers     and     em-  or     conditions     of     employment." 

ployees,   or   between   employees,    or  Why,  however,  was  there  not  a  dis- 

between  persons  employed  and  per-  pute  between  the   defendants,  who 

sons  seeking  employment,  involving,  were  "persons  employed,"  and  the 

or  growing  out  of,  a  dispute  con-  non-union  workers  who  were  **per- 

cerning  terms  or  conditions  of  em-  eons  seeking  employment"  from  the 

ployment.'     These   words   evidently  complainants?     The  former  wanted 

relate  to  suits  arising  from  strikes  to  triumph  in  the  competitive  strug- 

and  similar   controversies,   and  the  gle   against   the   latter.     Why  was 

committee  reports  upon  the  bill  bear  not     this     dispute     between     them 

out  this  view  of  the  scope  of  the  "concerning  the  terms  or  conditions 

section.    But  this  is  not  such  a  suit,  of  employment,"  i.  e.,  whether  the 

There   is   no   relation   of   employer  non-union  men  should  be  employed 

and    employee,    either    present    oi*  unless  they  joined  the  union? 
prospective,  between  the  parties  in 

Kales  Sum.  B.  of  T.— 10  145 


§  161]  TRADE  COMMISSION  AND  CLAYTON  ACTS  [Ch.  13 

sarily  mean  that  when  these  same  acts  are  done  with  the  local- 
ized monopoly  purpose  of  bringing  every  person  who  would 
wish  to  work  at  a  particular  place  into  an  organization  which 
has  for  its  object  to  prevent  any  member  from  working  at  that 
particular  place,  and  when  this  purpose  has  been  so  far  carried 
out  that  the  organization  which  seeks  to  promote  it  occupies  a 
preponderant  position  in  the  labor  field  serving  that  particular 
shop  or  place,i2  g^ch  an  organization  and  its  acts  of  peaceful 
picketing  are  valid  under  the  Clayton  Act.  Under  such  cir- 
cumstances the  acts  in  question  have  become  quite  different 
from  those  enumerated  in  Section  20.  They  have  an  entirely 
different  significance  by  the  addition  of  the  monopoly  purpose. 
§162.  Section  16  of  the  Act*^  establishes  the  individual's 
right  to  injunctive  relief  as  to  all  acts  which  are  illegal  and  tor- 
tious under  the  Sherman  Act  or  the  Clayton  Law  where  irrep- 
arable damage  is  threatened  and  the  remedy  at  law  is  inade- 
quate.*^ 

12— Ante  §  100.  14— See  ante  §  152. 

13— [1240]. 


146 


PART  4 
PATENTS  AND  COPYRIGHTS 


CHAPTER  XIV 
EFFECT  OF  PATENTS  AND  COPYRIGHTS 

§  162a.  A  patentee  is  given  by  law  the  exclusive  right,  for  a 
limited  period,  to  "make,  use,  and  vend"  the  invention,  or 
license  others  to  do  so.^  The  holder  of  a  copyright  is  given  the 
"sole  right  and  liberty  of  printing,  reprinting,  publishing,  and 
vending"  the  copyrighted  article  for  a  term  of  years.^ 

§  163.  These  grants  of  privileges  by  Congress  are,  however, 
subject  to  the  legislative  power  of  the  state  to  some  extent — 
at  least  in  the  absence  of  any  more  explicit  action  by  Congress. 
Thus  the  right  given  by  letters  patent  to  vend  a  patented  im- 
provement for  burning  oil  was  subject  to  the  legislative  power 
of  a  state  which  condemned  the  device  as  dangerous.^  So  the 
existence  of  the  Bell  Telephone  and  subsequent  telephone  pat- 
ents, which  the  Central  Union  Telephone  Company  was  entitled 
to  use  in  Indiana,  did  not  avoid  an  act  of  the  Indiana  legislature 
providing  for  the  regulation  of  rates  to  be  charged  by  tele- 
phone companies.* 

§164.  An  important  question  which  has  arisen  under  the 
Patent  and  Copyright  Acts  is  this:  How  far  may  the  sale  of 
or  the  license  to  use,  the  patented  article,  or  the  sale  of  a  copy- 
righted article,  be  made  subject  to  conditions  or  stipulations 
which,  if  not  adhered  to,  will  avoid  the  license  or  the  sale  and 
cause  the  continued  use  to  be  an  infringement? 

1— Eev.  State.  §4884.  3 — ^Patterson  v.  Kentucky,  97  U. 

2—1  Stet.  at  Large  by  Peters,  S.  501  (1878). 

chap.  15,  p.  124.     See  also,  B.  S.  4— Hockett    v.    State,    105    Ind. 

14952;    Act  Mar.  4,   1909,  c.  320,  250,  257  (1885). 
fl. 

147 


§  165]  PATENTS  AND   COPYRIGHTS  |.^'^'  1*^ 

§165.  When,  for  instance,  the  patentee  of  the  fundamental 
Bell  telephone  patent,  which  gave  to  the  patentee  a  monopoly 
of  the  telephone  business  down  to  1893,  leased  telephone  instru- 
ments to  telephone  companies,  it  attempted  to  impose  the  re- 
striction that  the  instrument  should  not  be  used  by  telegraph 
companies  other  than  the  Western  Union.  When  telegraph 
companies  other  than  the  Western  Union  attempted  to  compel 
the  Bell  Telephone  Company  to  render  service,  they  were  met 
with  the  defense  that  this  was  forbidden  by  the  stipulation  and 
conditions  of  the  license  and  lease  in  question.  This  defense 
failed.^  When  the  instruments  were  put  into  use,  by  lease  or 
license,  in  a  given  public  service  business,  the  conduct  of  the 
business  was  required  to  be  in  compliance  with  the  rules  of  law 
relating  to  that  business — one  of  which  was  that  all  members 
of  the  public  were  entitled  to  be  served  without  discrimination. 
The  license  to  use  the  invention  could  not  be  so  restricted  as 
to  interfere  with  this  rule. 

§  166.  More  recently,  attempts  have  been  made  to  sell  or 
license  the  use  of  a  patented  article  with  a  stipulation  that  the 
vendee  or  licensee,  and  those  who  take  from  them,  shall  use, 
with  the  patented  article,  only  certain  unpatented  accessories 
sold  by  the  vendor  or  licensor.^  Licenses  have  provided,  both  as 
to  patented  articles  and  copyrighted  articles,  that  they  shall 
not  be  resold  by  the  vendee  or  licensee  or  anyone  taking  from 

5 — State  V.   Bell   Telephone  Co.,  braska  Telephone  Co.,  17  Neb.  126, 

36  Oh.  St.  296  (1880);  Commercial  22  N.  W.  237,  239   (1885);  Postal 

Union  Telegraph  Co.  v.  New  Eng-  Cable  Telegraph  Co.  v.  Cumberland 

land  Telephone  &  Telegraph  Co.,  61  Telephone    &    Telegraph    Co.,    177 

Vt.   241    (1888);    Missouri  v.    Bell  Fed.    726    (1910);    Bement   v.   Na- 

Telephone  Co.,  23  Fed.  539  (1885);  tional   Harrow   Co.,    186  U.   S.    70 

State  ex  rel.  Postal  Telegraph  Cable  (1902)    (semble) ;    Heaton-Peninsu- 

Co.  V.  Delaware  &  Atlantic  Tel.  &  lar  Button  Fastener  Co.  v.  Eureka 

Tel.  Co.,  47  Fed.  633  (1891) ;  Dela-  Specialty  Co.,  77  Fed.  288    (1896) 

ware  &  Atlantic  Tel.  &  Tel.  Co.  v.  (semble) ;    Metropolitan   Trust   Co. 

Delaware,    50    Fed.     677     (1892) ;  v.  Columbus  Co.,  95  Fed.  18  (1899) 

Bell    Telephone    Company    v.    Com-  (semble). 

monwealth,   3    Atl.    825,    827    (Pa.  6 — Henry  v.  A.  B.  Dick  Co.,  224 

1886) ;  Chesapeake  &  Potomac  Tele-  U.    S.    1    (1912) ;    Motion    Picture 

graph  Co.  v.  Baltimore  &  Ohio  Tele-  Patents  Co.  v.  Universal  Film  Manu- 

graph  Co.,  66  Md.  399,  416  (1886),  facturing  Co.,  243  U.  S.  502  (1917). 
7   Atl.   809    (1887);    State   v.   Ne- 

148 


Ch.  14]  PATENTS  AND   COPYRIGHTS  [§  168 

them,  for  less  than  a  certain  priceJ  In  suits  based  upon  the 
Patent  and  Copyright  Acts  to  enjoin  the  use  of  the  patented  or 
copyrighted  article  where  these  stipulations  have  been  violated 
by  remote  holders  with  notice  the  United  States  Supreme  Court 
has  decided  against  both  the  patentee  and  the  holder  of  the 
copyright.^  These  cases  proceed  primarily  upon  a  construction 
of  the  Patent  and  Copyright  Acts — namely,  that  the  right  to 
''vend"  or  "license"  does  not  include  the  right  to  place  upon 
the  use  by  the  licensee  or  vendee  or  others  the  conditions  or 
restrictions  in  question.  Underlying  this,  however,  is  the  idea 
that  there  is  something  contrary  to  public  policy  in  such  condi- 
tions and  stipulations;  that  they  are,  apart  from  any  question 
of  patents  or  copyrights,  subject  to  condemnation  because  they 
are  illegal  restraints  of  trade  or  attempts  at  monopoly ;  and  that 
the  right  to  "vend"  and  "license"  under  the  Patent  Act  and 
the  right  to  "vend"  under  the  Copyright  Act  must  be  subject 
to  the  further  rule  that  no  stipulations  or  conditions  shall  be 
attached  to  the  sale  or  license  of  the  patented  article  which 
would  be  illegal  if  attached  to  a  non-patented  or  non-copyrighted 
article.  An  effort  has  already  been  made  elsewhere  to  show  that 
there  is,  upon  a  proper  balancing  of  all  the  interests,  no  ground 
for  holding  the  stipulations  or  conditions  in  question  void  when 
attached  to  an  unpatented  or  uncopyrighted  article.^ 

§167.  How  far  does  a  patent  which  controls  the  carryin,g 
on  of  a  given  business  during  the  life  of  the  patent  justify  a 
combination  of  units  in  that  business  which,  except  for  the 
patent,  would  be  illegal  ?  ^^ 

§  168.  It  is  safe  to  say  that  a  patent  will  not  justify  a  com- 
bination which  is  arranged  to  extend  beyond  the  life  of  the 

7 — ^Bobbs-Merrill    Co.    v.    Straus,  10 — Bement  v.  National   Harrow 

210    U.    S.    339    (1908) ;    Bauer   v.  Co.,  186  U.  S.  70  (1902)    [1246]  is 

O'Donnell,    229    U.    S.    1    (1913);  often  cited  in  this  connection;  but 

Straus   V.   Victor  Talking  Machine  it  does  not  in  the  least  touch  the 

Co.,  243  U.  S.  490  (1917).  problem,  because  only  a  single  con- 

8 — See  cases  cited  supra  notes  6  tract  was  involved.     The  record  did 

and  7  except  Henry  v.  A.  B.  Dick  not  disclose  any  combination  for  the 

Co.,  244  TJ.  S.  1  (1912);  which  sua-  court  to  pass  upon,  and  the  single 

tained  the  suit  of  the  patentee,  but  contract  before  the  court  was  un- 

ifl  now  overruled.  objectionable    even    if    there    had 

9 — Ante  §§  33-39,  44  et  seq.  been  no  patent. 

149 


§  168]  PATENTS  AND  COPYRIGHTS  [Ch.  14 

patent.!*  It  seems  quite  as  clear  that  if  the  control  of  the  busi- 
ness is  secured  by  the  union  or  purchase  of  competing  patents, 
it  will  not  only  not  be  justified,  but  an  additional  ground  for 
illegality  will  exist.^^  Since  each  patent  gives  the  patentee  a 
monopoly  for  seventeen  years  of  the  use  and  disposal  of  his  inven- 
tion, the  field  is  absolutely  closed  to  aU  others.  It  follows  that  the 
union  of  the  only  two  properties  which  can  be  used  to  carry  on  a 
given  business  would  make  an  actual  monopoly.  A  union  of 
two  out  of  three  or  even  a  union  of  any  number  out  of  any 
other  number  would  produce  an  illegal  attempt  at  monopoly. 
The  right  to  vend  or  license  the  use  of  an  invention  is  subject 
to  the  general  rules  of  law  against  monopoly  to  this  extent, 
at  least:  that  after  property  in  an  invention  has  been  created 
and  an  exclusive  privilege  of  vending  or  licensing  given,  it  must, 
like  other  property,  be  kept  out  of  combinations  with  other 
properties  which  constitute  a  monopoly  or  an  attempt  at  monop- 
oly in  the  business. 

§  169.  If  the  patents  or  copyrights  cannot  be  said  to  be 
of  so  fundamental  a  character  as  to  exclude  others  from  the  busi- 
ness, they  can  hardly  be  used  to  justify  a  combination  of  com- 
peting units  which  has  a  preponderant  position  and  an  intent 
to  monopolize  by  excluding  others  by  unfair  and  illegal  meth- 
ods of  competition.13 

§  170.  Suppose  a  single  fundamental  patent  gave  to  the 
patentee  a  monopoly  of  doing  a  given  business  for  seventeen 
years.  Would  that  fact  justify  the  combination,  limited  to  the 
life  of  the  fundamental  patent,  of  units  in  the  business  which 

11 — Strait  V.  National  Harrow  13 — Straus  v.  American  Pub- 
Co.,  18  N.  Y.  S.,  224  (1891).  lishers  Association,  231   U.   S.   222 

12— Blount  Mfg.   Co.   v.  Yale  &  (1913)    [1273]. 
Towne    Mfg.    Co.,    166    Fed.    555  Where,  however,  the  patents  are 

(1909) ;    National    Harrow    Co.    v.  not  competing  but   are  supplemen- 

Heneh,  83  Fed.  36  (1897) ;  National  tary  to  each  other — all  being  used 

Harrow  Co.  v.  Hench,  84  Fed.  226  together  for  the  purpose  of  manu- 

(1898) ;  United  States  v.  New  De-  faeturing  a  given  commodity — there 

parture    Mfg.    Co.,    204    Fed.    107  is  no  objection  to  the  assembling 

(1913) ;  Vulcan  Powder  Co.  v.  Her-  in    a    single    manufacturing    unit 

cules    Powder    Co.,    96    CaL     510  many     valuable     patents:      TJnited 

(1892) ;  State  v.  Creamery  Package  States  v.  Winslow,  227  TJ.   S.  202 

Mfg.  Co.,  110  Minn.  415  (1910).  (1913). 

150 


Ch.  14]  PATENTS  AND  COPYRIGHTS  [§  172 

would  otherwise  be  illegal  solely  because  it  was  an  attempt  to 
monopolize  ? 

§171.  In  Standard  Sanitary  Manufacturing  Co.  v.  United 
States  ^4  it  appeared  that  the  business  of  manufacturing  enamel 
ironware  had  been  carried  on  by  many  competitors  when  the 
Arrott  patent  was  issued  which  provided  for  so  superior  a 
process  that  it  controlled  the  business.  Competitors  attempted 
to  compete,  but  the  effectiveness  of  the  patent  was  such  that  the 
great  majority  were  forced  into  a  combination  which  was  ef- 
fected by  license  contracts  to  use  the  patents.  These  license  con- 
tracts provided,  among  other  things,  for  the  elimination  of  all 
competition  between  the  units  combined  so  far  as  the  jBxing  of 
prices  was  concerned.  The  United  States  Supreme  Court  held 
that  the  combination  was  without  justification.  The  Patent  Act 
which  gave  an  exclusive  right  to  vend  or  license  the  article 
patented  did  not  give  any  special  privilege  to  use  that  right 
for  the  ulterior  purpose  of  forcing  competitors  into  a  combina- 
tion which  except  for  the  patent  would  be  illegal. 

§  172.  Suppose  there  had  been  no  one  at  all  in  the  business 
when  the  invention  was  made — as  in  the  case  of  the  telephone. 
Suppose  the  holders  of  a  single  fundamental  telephone  patent 
which  gave  a  monopoly  of  the  telephone  business  had  organ- 
ized that  business  for  the  period  of  the  life  of  the  patent  as  a 
combination  of  operating  units,  each  a  separate  and  distinct 
corporation,  with  separate  and  distinct  bodies  of  stockholders 
with  all  competition  between  them  eliminated  under  the  terms 
of  the  license  contract  to  use  the  patent.  Would  such  a  com- 
bination have  been  legal  ?  Could  a  distinction  be  made  between 
the  using  of  a  fundamental  patent  to  suppress  a  competition 
which  existed  before  the  patent  and  to  force  those  units  which 
had  previously  competed  into  a  combination,  and  the  using  of  a 
existed  but  which  was  organized  on  the  basis  of  combining  sep- 
fundamental  patent  to  create  a  business  which  had  not  before 
arate  units  which  were  not  premitted  to  compete? 

14—226  U.  S.  20  ('1912)   [1136]. 


151 


INDEX 

[eefekences  are  to  sections] 
ACCESSORIES 

contracts  to  force  use  of 
in  general,  41-47b. 
under  Patent  and  Copyright  Acts,  164-166. 

ADDYSTON  PIPE  CASE,  66. 

as  a  construction  of  Sherman  Act,  123. 

AGSEEMENTS  (see  Contracts). 

AMERICAN  CAN  COMPANY 

abandons  excluding  practices,  88. 

AMERICAN  TOBACCO  COMPANY 
Brandeis'  views  on,  77. 
power  of  endurance  of,  77. 
Tobacco  Case  discussed,  51. 
Tobacco  Case  quoted,  144. 
rule  of  reason  applied  in  Tobacco  Case,  144. 
Tobacco  Case  compared  with  Standard  Oil  Case,  126,  129. 

ANTI-TRUST  LAWS 

United  States  (see  Sherman  Act,  Clayton  Act,  and  Federal  Trade 

Commission  Law). 
Kentucky,  147. 

APPRENTICE 

restrictive  contracts  by,  2-5. 

ARROTT  PATENTS,  171. 

ATTORNEY-GENERAL 

power  to  invoke  Sherman  Act,  149. 

AUCTION 

combination  of  bidders  at,  49  n.7,  100. 

153 


INDEX 

[eefebencks  aee  to  sections] 
AUTOMOBILES 

illustration  of  mauuf actvxer  of  low-priced,  128. 

BANKEES 

combinations  of,  53. 

BAEBER  SHOP 

operated  for  spite,  107a. 

BELL  TELEPHONE  COMPANY 
patents,  40. 
skill  of  engineers,  78. 
also  see  Telephone  Companies. 

BLACKLIST,  100. 

as  method  of  trade  competition,  106,  132-134. 

BOYCOTT 

secondary  boycott  in  general,  97, 

as  method  of  trade  competition,  101,  106. 

under  Clayton  Act,  160,  161. 

under  Sherman  Act,  135,  152. 

BRANDED  GOODS 

fixing  prices  of  on  resale,  31-40. 

BRANDEIS,  LOUIS  D. 

views  on  closed  shop,  83. 

views  on  economic  effect  of  mere  size,  74-81,  83,  89. 

views  on  extortionate  prices,  79. 

BEEWEE,  ME.  JUSTICE 

opinion  in  Northern  Securities  Case,  118,  139. 

BEICKLAYEES 

jurisdictional  dispute  of,  105. 

BUTCHEES 

combination  by,  95. 

see  QuiNN  v.  Leathen,  97. 

CAEEIEES  (see  Raileoads). 

CJLAYTON  ACT,  155-162. 

combination  by  stock  ownership  forbidden,  155. 
exclusive  contracts  of  purchase  and  sale  under,  156. 

154 


INDEX 

[refeeences  aee  to  sections] 
CLAYTON  ACT— Continued. 

interlocking  directors  forbidden,  155. 
labor  provisions  of,  157-161. 
local  price-cutting  forbidden,  156. 
secondary  boycott  under,  160,  161. 
Section     6  of,  157-159. 
Section  16  of,  162. 
Section  20  of,  160,  161. 

CLOSED  SHOP 

in  general,  98,  99. 

Brandeis'  views  on,  83. 

as  tending  toward  monopoly,  83. 

COERCION 

a  form  of  unlawful  competition,  50. 

COMBINATIONS 

see  Table  of  Contents,  especially  chap.  V. 

by  exclusive  contracts  of  sale  and  purchase,  26-30. 

by  stock  ownership,  forbidden  by  Clayton  Act,  155. 

of  bidders  at  public  auction,  100. 

of  public  utilities,  51. 

of  railroads,  51. 

of  units  controlling  natural  resources,  52. 

of  units  operating  under  franchises,  51. 

restrictive  contracts  accompanying,  18. 

which  fix  price  on  resale,  71. 

COMMON  LAW 

restraint  of  trade  at,  1-107. 

COMPETITION 
cutthroat,  17. 
excessive,  22. 

COMPETITIVE  METHODS 
in  general,  93-107. 

equitable  relief  against  (see  Equttt). 

under  Sherman  Act,  130-136. 

under  Trade  Commission  Law,  154. 

used  by  live  stock  exchange,  130. 
specific  methods 

blacklist,  100,  106,  132-134. 

boycott  (see  Boycott), 

155 


INDEX 

[repeeences  aee  to  sections] 
COMPETITIVE  METHODS— Continued, 
closed  shop,  83,  98,  99. 
coercion,  50. 

competition  out  of  spite,  107a. 
contracts  by  apprentices,  2-5. 

contracts  to  fix  price  on  resale  (see  Conteacts  to,  Etc.). 
contracts  to  force  use  of  accessories  (see  Contracts  to,  Etc.). 
dumping,  87. 
exclusive  agencies,  26-30. 

exclusive  contracts  of  sale  and  purchase,  26-30,  115,  156. 
fighting  ships,  136. 
fraud,  50. 

inducing  breach  of  contract,  50. 
intimidation,  50. 
leaders,  31-40,  104,  106. 
libel,  50. 

local  price-cutting  (see  Price-Ctjtting,  Local). 
picketing,  100. 

price-cutting  by  department  stores,  36. 
rebates,  50. 

secondary  boycott  (see  Boycott). 
secret  combination  of  bidders,  49  n.7. 
self-imposed  fine,  102. 
simulated  competition;  49  n.7. 
strike  (see  Strike). 
threat  to  strike,  96,  97. 
tying  contracts,  26-30,  115,  156. 

CONSIDERATION 

in  contracts  not  to  compete,  4,  7. 

CONTRACTS,  EXCLUSIVE  (see  Contracts  Not  to  Compete). 

CONTRACTS  NOT  TO  BID  AT  AUCTION,  49  n.7,  100. 

CONTRACTS  NOT  TO  COMPETE 
see  Table  of  Contents,  chaps.  I-III. 
accompanying  a  combination,  18. 

also  see  Combinations. 
accompanying  the  sale  of  a  business  to  a  competitor,  16-22. 

also  see  Combinations. 
accompanying  the  sale  of  a  business  not  to  a  competitor,  6-15. 
accompanying  the  eale  of  property,  the  business  not  being  sold,  23-25. 
after  death  of  promisee,  3. 
apprentice's,  2-5. 

156 


INDEX 
[BEFEBXNCES  ABE  TO  SECTIONS] 

CONTRACTS  NOT  TO  COMPETE— Continued, 
consideration  for,  4. 

contracts  not  to  bid  at  public  auction,  49  ii.7,  100. 
divisibility  of,  14. 

enforcement  in  equity  (see  Equity). 
exclusive  contracts  of  sale  and  purchase. 

in  general,  26-30. 

under  Clayton  Act,  156. 

under  Sherman  Act,  115. 
in  foreign  countries,  10,  15. 

mere  contracts  to  refrain  from  doing  business,  1. 
partners',  18. 
scope  of  contract 

in  general,  11-14,  18,  23. 

broader  than  master's  business,  2. 

broader  than  seller's  business,  6,  10-14,  18,  23. 

enforcement  in  equity  after  promisee's  business  en^ed,  24. 

geographical  limitations,  2,  6,  10-15,  20. 

time  limitations,  13,  14,  24. 
under  Sherman  Act,  113,  114. 
when  plant  is  left  idle,  20-22. 
where  promisee  not  interested  in  the  business,  1. 

CONTRACTS  TO  FIX  RESALE  PRICE,  31-40,  47a,  47b. 
under  Patent  and  Copyright  Acts,  164-166. 
under  Sherman  Act,  116. 
when  made  by  a  combination,  71,  104,  106. 

CONTRACTS  TO  FORCE  USE  OF  ACCESSORIES,  41-47b. 
under  Patent  and  Copyright  Acts,  164-166. 

COPYRIGHTS  (see  Patents  and  Copteights). 

CORN  PRODUCTS  CASE 

distinguished  from  Wall  Paper  Case,  153. 

CORNERS 

of  natural  resources,  52. 
of  skill  and  efficiency,  78. 

COVENANTS  (see  Contracts). 

covenants  running  with  the  land,  25. 

CURRYCOMBS 

contract  to  force  use  of  on  mule  sold,  44,  116. 

157 


INDEX 

[BEFEBENCES  ABE  TO  SECTIONS] 

CUTTHEOAT  COMPETITION,  57. 

DANBURY  HATTERS'  CASE,  135. 
injunctive  relief  in  similar  case,  152. 

DAY,  MR.  JUSTICE 

opinion  in  Cash-Register  Case,  quoted,  78  n.62. 

DEPARTMENT  STORES 
price-cutting  bj,  36. 

DIVISIBILITY  OF  CONTRACTS  NOT  TO  COMPETE,  14. 

DIVISION  OP  TERRITORY,  53  n.l8. 

DOCTORS 

sale  of  business  by,  13. 

DRUGGISTS  (see  Pharmacists). 

DUE  PROCESS  OF  LAW 

effect  of  on  construction  of  Sherman  Act,  145-148. 
Sherman  Act  more   clearly   due  process  than  hours  aii4  wage-fixing 
legislation,  73. 
'         protects  freedom  of  economic  action,  56,  59. 

DUMPING,  87. 

ENDURANCE  OP  LARGE  COMPANY,  POWER  OF,  77. 

EQUITY,  RELIEF  IN 
equitable  servitudes 

in  chattels  in  general,  47a,  47b. 

contracts  to  keep  up  price  on  resale,  31-40. 

contracts  to  force  use  of  accessories,  41-47. 

in  land,  24,  25. 
to  enforce  covenants  by  buyer  of  property,  24,  25. 
against  violation  of  Sherman  Act,  152. 
against  violation  of  Clayton  Act,  162. 

EXCESSIVE  COMPETITION,  57. 

EXCLUDING  PRACTICES  AND  PURPOSES 
as  test  of  illegality  of  a  combination,  48-92. 
see  Competitive  Methods. 

158 


INDEX 

[SEFERSNCES   ABE  OX)  SECTIONS] 

EXCLUSIVE  AGENCIES  (see  Exclusive  Conteacts  or  Saue  an©  Pira- 

CHASE) . 

EXCLUSIVE  CONTBACTS  OF  SALE  AND  PUBCHASE 
at  common  law,  26-30. 
under  Clayton  Act,  156. 
under  Sherman  Act,  115. 

FEDERAL  TRADE  COMMISSION  LAW,  154. 

FIFTH  AMENDMENT  (see  Dub  Process  or  Law). 

FIGHTING  SHIPS,  136. 

FOREIGN  TRADE 

restrictive  covenants  covering,  10,  15. 

FORFEITURE  ON  ALIENATION  (see  Restraint  on  Alienation). 

FOURTEENTH  AMENDMENT  (see  Due  Psocess  or  Law). 

FRANCHISES 

combinations  of  units  operating  under,  51. 
•effect  of  tmder  Sherman  Act,  117-122. 
exclusive  contracts  with  companies  dependent  on,  30. 
in  Standard  Oil  Case,  126  n.34. 

FRAUD 

a  form  of  unlawful  competition,  50. 

FRONTIER,  SOCIAL  STRUCTURE  OF,  89. 

GRAY,  JOHN  C. 

case  of  the  three  Jerseymen,  118  n.l6,  17. 
on  Northern  Securities  Case,  118. 
"Powers  in  Trust"  quoted,  82  n.67 
**The  Merger  Case,"  118  n.l6,  17,  139  n.5. 
•"The  Nature  and  Sources  of  the  Law,"  148  n.l4. 

GROCTERIES 

combination  of  comer  grocers,  53. 

their  relation  to  fixing  price  on  resale,  36. 

HATTERS 

Danbury  Hatters'  Case,  135. 

injunctive  relief  in  similar  case,  152. 

159 


INDEX 

[BEFSBENCES  ABE  TO  SECTIONS] 


HOAB,  SENATOB 
quoted,  108  n.l. 


HOAEDING 

by  large  combination,  87. 

HOLMES,  ME.  JUSTICE 

dissenting  opinion  in  Dr.  MUes  Case,  71. 
opinion  in  Northern  Securities  Case,  118,  139. 
opinion  in  Paine  Lumber  Co.  v.  Neal,  152. 

HOTELS 

case  of  exchanged,  22  n.46. 

ILLUSOEY  APPOINTMENT 

and  construction  of  Sherman  Act,  81. 

INDUCING  BEEACH  OF  CONTEACT,  50. 

INDUSTEIAL  EEVOLUTION,  59,  68. 

INJUNCTION  (see  Equity). 

INSUEANCE  COMPANIES 
combination  of,  64  n.30. 

INTEGEATION  OF  INDUSTEIES  BY  EXCLUSIVE  CONTEACTS,  28. 

INTEELOCKING  DIEECTOES 
forbidden  hy  Clayton  Act,  155. 

INTEENATIONAL  HAEVESTEE  COMPANY 

District  Court  Decision,  68,  69 ;  quoted,  53  n.l8,  70  n.47. 

never  used  excluding  practices,  88. 

suppose  it  refused  to  deal  with  independents,  103. 

INTEESTATE  COMMEECE 

Sherman  Act  a  regulation  of,  118  n.l8. 

INTEESTATE  COMMEECE  COMMISSION 

creates  competition  by  ordering  interconnections,  119. 

INTIMIDATION,  50. 

JOINT  TEAFFIC  ASSOCIATION  CASE,  118-120. 

160 


INDEX 

[keteeences  abb  to  sections] 
KALES,  A.  M. 

"Cases  on  Contracts  and  Combinations  in  Bestraint  of  Trade,"  p.  iv, 

1  n.l. 
**Due  Process,  the  Inarticulate  Major  Premise  and  the  Adamson  Act," 
145  n.5. 

LABOR  UNIONS 
boycott  by 

at  common  law,  97. 

under  Clayton  Act,  160,  161. 

under  Sherman  Act,  135,  152. 
closed  shop  used  by,  83,  98,  99. 
effect  of  their  preponderant  position  in  market,  98. 
eliminate  competition,  72. 
excluding  practices  by,  98. 
exemplify  tendency  toward  combination,  59. 
jurisdictional  dispute  of,  96,  105. 
legal  unless  they  employ  excluding  practices,  72,  83. 
local  contrasted  with  national,  99. 
picketing  by,  100. 

size  not  illegal  unless  excluding  practices  used,  83. 
strike  by  (see  Strike). 
threat  to  strike — ^legal  or  illegal,  96,  97. 
under  Clayton  Act,  157-161. 
under  Sherman  Act,  72. 

LAWYEKS 

sale  of  business  by,  13. 
combinations  of,  53. 

LEADERS 

met  by  contracts  to  fix  price  on  resale,  31-40,  104, 106. 

LIBEL 

a  form  of  unlawful  competition,  50. 

LICENSE 

of  patented  article  with  contract  to  use  unpatented  accessories,  41-47b. 

LIQUOR  BUSINESS 

contracts  not  to  engage  in,  1. 

LIVE  STOCK  EXCHANGE 

competitive  methods  used  by,  130. 

LOCAL  PRICE-CUTTING  (see  Peice-Cuttino,  Local). 

161 


INDEX 

[eeperbnces  aee  to  SBCTIOirS] 
LUMBER  DEALERS 

competitiye  methods  used  by,  132. 

LURTON,  MR.  JUSTICE 
quoted,  134  n.48. 

MAIL  ORDER  HOUSE 
picketing  a,  100. 

MERGER 

Holmes,  J.,  attempts  to  distinguish  from  combination  by  contract,  139. 

MIMEOGRAPH  CASES  (Henry  v.  A.  B.  Dick  Co.),  41-47b. 

MINES 

combined  with  manufacturing  plant,  28. 

MONKEY-WRENCH 

judicial  misuse  of,  38. 

MONOPOLY 

common  law  meaning  of,  50. 
localized,  100. 

under  Clayton  Act,  161. 
tendency  toward  by  combination  of  insignificant  units,  55. 

MULE 

contract  to  force  use  of  specified  currycombs  on,  44,  116. 

NATURAL  RESOURCES 

combination  of  units  controlling,  52. 
control  of  by  large  imit,  85. 
granite  quarries,  102. 

NECESSARIES 

combiaation  of  units  controlling,  52. 

NEWSPAPERS 

combination  of,  107. 

NORTHERN  SECURITIES  CASE,  118. 
dicta  by  the  judges,  139. 
followed  in  U.  S.  v.  Reading  Co.,  122. 

NOTTINGHAM,  LORD 

decision  in  Duke  of  Norfolk  'a  Case,  91, 142. 

162 


INDEX 

[eepeeences  aee  to  sections] 
OIL  BUSINESS 

combination  in  (see  Standabo  OHj  Co.). 

OVERPRODUCTION 
evils  of,  57. 

PAINTINGS 

contracts  to  force  use  of  certain  preservative  on,  44, 116. 

PARTNERS'  CONTRACTS  NOT  TO  COMPETE,  18. 

PATENTS  AND  COPYRIGHTS 
effect  of,  in  general,  162a-172. 
Bell  Telephone  patents,  40. 
combinations  based  on,  167-172. 
combinations  based  on  fundamental  patents,  172. 
contracts  to  force  use  of  unpatented  accessories,  41-47b. 
CopTright  Act  quoted,  162a. 
fundamental  patents,  40,  172. 
in  relation  to  contracts  fixing  price  on  resale,  40. 
licenses  accompanied  by  restriction,  164-166. 
Patent  Act  quoted,  162a. 
under  Sherman  Act,  116. 
use  of  patented  article  hy  public  utility,  165. 

PECKHAM,  MR.  JUSTICE 

opinion  in  Montague  v.  Lowry,  131  n.42. 
opinion  in  Northern  Securities  Case,  139. 
opinion  in  Trans-Missouri  Freight  Association  Case,  138. 

PEPPERMINT  OIL  CASE,  20  n.44. 

PERPETUITIES,  RULE  AGAINST 
compared  with  restraint  of  trade,  91. 

PHARMACIES 

combination  by,  104, 106. 

their  relation  to  fixing  price  on  resale,  36. 

PICKETING,  100. 

PITNEY,  MR.  JUSTICE 

dissenting  opinion  in  Paine  Lumber  Co.  v.  Neal,  152,  160  n.ll. 

PLUMBERS 

competition  among,  103. 

163 


INDEX 
[EEFEEENCES   AEE  TO   SECTIONS] 

POWER  OF  APPOINTMENT 

illusorj  appointment  and  construction  of  Sherman  Act,  81. 

PREPONDERANT  POSITION  IN  THE  MARKET 
as  a  test  of  a  trust,  48. 
businesses  which  do  not  occupy,  are  legal,  53. 
effect  of,  63  et  seq. 

in  relation  to  contracts  fixing  resale  price,  39. 
in  relation  to  exclusive  contracts  of  sale  and  purchase,  27-29. 
in  relation  to  labor  imions,  98. 

PRESERVATIVE 

contract  to  force  use  of  on  painting  sold,  44,  116. 

PRICE-CUTTING 
local 

explained,  50. 

forbidden  by  Clayton  Act,  156. 
justified,  94. 

met  by  contracts  to  fix  price  on  resale,  31-40,  106,  see  104. 
universal,  77,  86. 

PRICE-FIXING 
illegal,  70. 

on  resale  (see  Contracts  to  Fix  Resale  Price). 
shows  control  of  market,  124. 

PRICES 

exorbitant,  79,  86. 

Brandeis'  views  on,  79. 
fair,  85. 

PUBLIC  SERVICE  COMPANIES  (see  Public  Utilities). 

PUBLIC  UTILITIES 
combinations  of,  51. 

under  Sherman  Act,  117-122. 
field  not  free,  68. 
use  of  patented  articles  by,  165. 
see  Railroads. 
see  Telephone  Companies. 

PULLMAN  COMPANY 

exclusive  contracts  with,  27,  30. 

QUARRIES,  COMBINATION  OF,  102. 

164 


INDEX 

[EEFEKKNCES  ABE  TO  SECTIONS] 

RAILROADS 

combination,  of,  51,  68. 

contracts  with  sleeping  car  companies,  27,  30. 

under  Sherman  Act,  117-122. 

REBATES 

a  form  of  unlawful  competition,  50. 
in  Swift  Case,  124. 

REFRAINING  FROM  DOING  BUSINESS,  1-25. 

RESTRAINT  ON  ALIENATION 

contract  to  fix  price  on  resale,  33-35. 
contract  to  force  use  of  accessories,  43. 
also  see  47a,  47b. 

RESTRICTIONS  (see  Conteacts  Not  to  Compete). 

RESTRICTIVE  COVENANTS  (see  Contbacts  Not  to  Compete). 

RULE  AGAINST  PERPETUITIES 

compared  with  restraint  of  trade,  91. 

SALE  OF  A  BUSINESS  (see  Contracts  Not  to  Compete). 

SECONDARY  BOYCOTT  (see  Boycott). 

SECRET  PROCESS 

in  relation  to  contracts  not  to  compete,  11  n.21. 

SERVITUDES,  EQUITABLE  (see  Equity). 

SHERMAN  ACT 

see  Table  of  Contents,  chaps.  VTI-XI. 
boycott  under,  135,  152, 
competitive  methods  under,  130-136. 
constitutionality  of,  143-148. 

delegation  of  legislative  power,  147,  148. 

due  process  of  law,  145-148. 
construction  of,  108-112,  145-148. 

as  influenced  by  its  penal  features,  80. 
continuing  acts  under,  125. 

contracts  accompanying  sale  of  a  business  under,  113-114. 
contracts  to  fix  resale  price  under,  116. 
exclusive  contracts  of  sale  and  purchase  under,  115. 

165 


INDEX 

[repeeences  are  to  sections] 
SHERMAN  ACT— Continued. 

labor  unions  under,  72  (also  see  Labor  Unions). 

quoted,  108. 

stockholder's  suit  under,  149-152. 

suit  for  triple  damages  under,  148-153. 

who  may  invoke,  149-153. 

SHERMAN,  SENATOR 
quoted,  68  n.44,  76  n.60. 

SHIPPING  (see  Steamship  Companies). 

SIZE  OF  BUSINESS 

as  test  of  illegality,  75. 

SLEEPING  CAR  COMPANIES 
exclusive  contracts  with,  27,  30. 

SNOW,  CONRAD  E. 

on  the  Clayton  Act,  157  n.5. 

SPECIALTY 

fixing  price  of  on  resale,  31-40. 

SPECIFIC  PERFORMANCE  (see  Equity). 

STANDARD  OF  REASON,  145-148. 

STANDARD  OIL  COMPANY 

Standard  Oil  Trust,  48  n.3,  67,  127. 

Standard  Oil  Company  of  New  Jersey,  48  n.4,  127. 

control  of  pipe  lines  by,  126  n.34. 

if  it  refused  to  deal  with  independents,  103. 

prompt  service  used  temporarily  by,  107. 

Standard  Oil  Case 

analyzed,  65,  126-128. 

adopts  excluding  practices  as  test,  65. 

affirms  traffic  association  oases,  120. 

dictum  by  judges  in,  140. 

followed  in  U.  S.  v.  Reading  Co.,  122. 

rule  of  reason  in,  140. 

Standard  Oil  Company  of  Ohio  Case,  48  n.3,  67. 

STEAMSHIP  COMPANIES 
combination  of,  94. 

under  Sherman  Act,  136. 

166 


INDEX 

[references  are  to  sections] 
STEAMSHIP  COMPANIES— Continued. 

combination  with  wharves  company  and  railroad  company,  129. 

fighting  ships,  136. 

restrictive  covenants  concerning,  20. 

STEVENS,  WILLIAM  S. 
article  by,  50  n.l3. 

STOCKHOLDEE'S  SUIT 

to  invoke  Sherman  Act,  149-152. 

STEIKE 

compared  with  blacklist  as  trade  method,  132-134. 

compared  with  boycott,  107. 

compared  with  retailer's  boycott,  101. 

in  jurisdictional  disputes,  105. 

threat  to  strike,  96,  97. 

under  Clayton  Act,  160,  161. 

used  by  retailers'  association  against  wholesalers,  104. 

TAET,  WILLIAM  H. 

opinion  in  Addyston  Pipe  Case  discussed,  66. 

TAETAR  BUSINESS 
rock  and  bone,  17. 

TELEPHONE  COMPANIES 
Bell  patents,  40. 

combination  based  on  patents  like,  172. 

subject  to  police  power  of  state,  163. 

restrictions  accompanying  license  of,  165. 
combination  based  on  fundamental  patents,  169-172. 
exclusive  contracts  with,  30. 
illegality  of  as  defense,  153  n.ll. 
patents  of,  40,  163,  165,  169-172. 
relative  skill  of  engineers  of,  78. 
restrictions  accompanying  license  of  Bell  patents. 

TERMINAL  PACILITIES 
combination  of,  121. 

THELLUSSON  ACT 

compared  with  law  of  restraint  of  trade,  91. 

TILE  DEALERS 

methods  used  by,  131. 

167 


INDEX 
[references   ABE  TO  SECTIONS] 

TOBACCX)  CASE  (see  American  Tobacco  Co.). 

TORTS 

see  Competitive  Methods. 
a  tort  defined,  93. 

TBADE  COMMISSION  LAW,  154. 

TRADE  UNIONS  (see  Labor  Unions). 

TRAFFIC  ASSOCIATION  CASES  (U.  S.  v.  Joint  Traffic  Association  an,d 
U.  S.  V.  Trans-Missouri  Freight  Association), 
compared  with  Northern  Securities  Case,  139. 
explained  in  Standard  Oil  Case,  143. 

TRANS-MISSOURI  FREIGHT  ASSOCIATION  CASE,  117-120. 
effect  of  dictum  in,  145  et  seq. 
quoted,  113  n.2,  138  n.2. 

TRANSPORTATION  UNITS  (see  Railroads). 

TYING  CONTRACTS,  26-30,  115,  156. 

UNFAIR  COMPETITION 
see  Competitive  Methods. 
defined,  50. 

UNFAIR  METHODS  OF  COMPETITION 
see  Competitive  Methods. 
defined,  50. 

UNION  PACIFIC  CASE,  119. 

UNIONS  (see  Labor  Unions). 

UNITED  STATES  STEEL  CORPORATION 
abandons  excluding  practices,  88. 
Brandeis'  testimony  as  to,  75. 
Government's  brief  against,  quoted,  48. 

UNLAWFUL  COMPETITION 
see  Competitive  Methods. 
defined,  50. 

UNREASONABLE  PRICE,  58. 

168 


INDEX 

[eefkesnces  aee  to  sections] 
UPPER  BERTH  CASE,  145. 

WALL  PAPER  CASE,  153. 

WATCH  CASE  CASE,  88. 

WESTERN  UlsriON  TELEGRAPH  COMPANY 
relations  with  Bell  Telephone  Company,  165. 

WHITE,  CHIEF  JUSTICE 

opinion  ia  Standard  Oil  Case,  126. 

WYMAN 

«* Control  of  the  Market,"  50  n.10. 


169 


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